News18» News»Business»India’s GDP Growth Hits 3-Year Low of 5.7% as GST, Demonetisation Take a Toll
2-MIN READ

India’s GDP Growth Hits 3-Year Low of 5.7% as GST, Demonetisation Take a Toll

Image for representation only. (Photo: Reuters)

Image for representation only. (Photo: Reuters)

India, which had the mantle of world’s fastest growing major economy, has now slipped below China in terms of growth. Our northern neighbor reported a growth rate of 6.9% for the last quarter.

auther-image

Tushar Dhara

New Delhi: India’s GDP growth tumbled to 5.7% in the April-June quarter of 2017, in a further sign that the slowdown induced by demonetisation coupled with the uncertainty around GST hit growth. The growth rate was the slowest in 13 quarters.

Data released by the Ministry of Statistics show that GDP slowed to 5.7% in the quarter ended June 30, from 7.9% in the corresponding period a year ago. The data also showed that the sectors that would have been affected by demonetisation were the ones that took the biggest hit.

Consider the sectors that have performed badly: Manufacturing (1.2% vs 10.7% a year ago); mining and quarrying (-0.7%), and construction (2% vs 3.1% a year ago). These are the cash intensive sectors that took the worst hit after the cash squeeze.

The sectors that registered strong growth were the ones that did well after demonetisation: financial services grew at 6.4% while trade, hotels, transport and communication grew 11%. Defence services showed an impressive growth of 9.5%.

“The sector that contributed the most to slowing economic growth was manufacturing. A continuation of the demonetization slowdown combined with uncertainty around the implementation of GST led to this,” T.C.A Anant, the Secretary of the Ministry of Statistics and Programme Implementation said in a briefing after the data was released.

India, which had the mantle of world’s fastest growing major economy, has now slipped below China in terms of growth. Our northern neighbor reported a growth rate of 6.9% for the last quarter.

India’s GDP growth in the fiscal 2016-17 fell to 7.1%, dragged down by the January-March quarter which bore the direct brunt of demonetisation. The effects of demonetisation coupled with the uncertainty around the implementation of GST seems to have dragged growth down in the three months gone by.

Analysts polled by CNBC-TV18 had predicted a growth rate of 6.3% for the quarter, while a poll by Reuters averaged a prediction of 6.6%.

Anjali Verma, Phillipcapital India, said that the impact of demonetisation had faded, "definitely". But the next quarter impact will be of GST (goods and services tax), which will have an adverse impact on growth overall, she said. "GST impact is just a one quarter phenomena, or at best one month after that. But then in the medium to long term it's expected to be a positive."

Abheek Barua, chief economist, HDFC Bank, said that the numbers were "disappointing and suggested that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST (goods and services tax) destocking". "We have to revise our GDP outlook numbers for the full year closer or perhaps lower than 7 percent."

Indranil Pan, Group Economist, IDFC Bank disagreed with Barua, saying, "The downside impact from demonetisation is no longer going to be there."

"Going ahead growth will be driven by GST and the pace of cleaning banks' balance sheets to improve the credit culture in the economy.

"In my opinion, the bank balance sheet problem will take a longer time than what others are expecting as it is not only cleaning the bad debt, but also improving capital base following mergers in the sector," he said.

(With inputs from Reuters)


Next Story
Loading...