New Delhi: India’s GDP growth slumped to a three-year low of 5.7 percent during April-June — lagging China for the second straight quarter — as manufacturing slowed ahead of the GST launch amid demonetization effect.
China clocked a record 6.9 percent growth in January-March as well as April-June quarters.
The expansion in gross domestic product (GDP) was 6.1 percent in the preceding quarter and 7.9 percent in the same period last fiscal. The previous low of 4.6 percent was recorded in January-March 2014.
Gross value added (GVA) in the manufacturing sector fell sharply to 1.2 per cent, from 10.7 percent year on year, as the businesses focused more on clearing inventories rather than production ahead of the July 1 launch of GST.
A separate set of official data showed that growth of eight core sectors slowed to 2.4 percent in July due to contraction in output of crude oil, refinery products, fertilizer and cement.
Uncertainty about new indirect tax rates under GST prompted a host of industries, including carmakers, FMCG companies and garment manufacturers, to clear their stocks.
Demonetization of high-value currency notes in November last year impacted economic activities in the January-March quarter as GDP growth slipped to 6.1 percent and further to 5.7 percent in the three months to June.
Chief Statistician T C A Anant attributed the fall to the decline in inventories ahead of the rollout of GST as businesses re-labelled existing stocks and fashioned new ones in accordance with the new tax regime.
The drop in growth, he asserted, was not linked to note ban.
Anant further said that as companies took to GST, inventory has returned to normal levels which will help revive growth.
The data released by the Central Statistics Office (CSO) came in below market expectations, which predicted it to be at least a tad higher than January-March growth figure of 6.1 per cent.
According to the data, there was a slowdown in the agricultural sector, too. GVA in the first quarter was 2.3 percent compared to 2.5 percent in the similar period last year.
Former chief statistician Pranab Sen said it was expected that the first quarter GDP would be weak because of GST.
“But, in my particular case, this is about 40 basis point lower than what I was considering. I would be looking at probably now sub-6.3 percent for the full year,” he added.
Crisil’s D K Joshi termed the GDP number as “disappointing” as the expectation was that the growth would be 6.5 per cent.
Meanwhile, India’s fiscal deficit at July-end touched 92.4 percent of the budget mainly because of front-loading of expenditure by various government departments. During the same period of 2016-17, it was 73.7 percent of the target.
Economic activities that registered growth of over 7 percent in the first quarter on an annual basis are trade, hotels, transport and communication and services related to broadcasting, public administration, defense and other services and electricity, gas, water supply and other utility services.
Growth in agriculture, forestry and fishing, mining and quarrying, manufacturing, construction and financial, insurance, real estate and professional services is estimated to be 2.3 percent, (-)0.7 percent, 1.2 percent, 2 percent and 6.4 percent, respectively, during this period.
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