India’s GDP grew slower at 5.7 per cent during April-June — the lowest in three years of the Modi government while lagging China for the second straight quarter — as manufacturing slowed ahead of the GST launch and note ban impact lingered.
As businesses destocked inventories ahead of the GST kick-off from July 1, gross value added (GVA) in manufacturing declined to a low of 1.2 per cent, from 10.7 per cent, year on year.
Gross domestic product (GDP) growth in the first quarter of 2017-18 was lower than 6.1 per cent of the preceding one and 7.9 per cent in the same period last fiscal.
China recorded 6.9 per cent growth in January-March as well as April-June quarters.
Expressing concern on the GDP numbers, Finance Minister Arun Jaitley said manufacturing growth rate seems to have bottomed out as GST has been implemented and destocking of pre-GST stocks is almost complete.
“… with GST now being operationalised, this would be bottoming out as far manufacturing is concerned and probably the curve could turn up,” the minister told reporters here.
The national income data released by the Central Statistics Office (CSO) for the first quarter is lowest during the Narendra Modi-led government’s regime, which assumed office in May 2014.
The previous low of 4.6 per cent was recorded in January- March 2014.
Chief Statistician T C A Anant said 74 per cent of manufacturing GVA comes from the private sector whose performance was poor.
Prices have risen on account of growth in input costs and “very large level of inventory de-accumulation that took place in the first quarter this fiscal”, he said while explaining the numbers.
Observing that it will be wrong to link the entire decline in economic activities to demonetisation, Anant said GVA was declining from the second quarter of the last fiscal, much before the November 8 decision of the government to junk high-value currency notes.
Uncertainty about new indirect tax rates under GST prompted a host of industries, including carmakers, FMCG companies and garment manufacturers, to clear their stocks.
“We are certainly concerned (about low growth),” Jaitley said.
Asked about whether the government can grow at 7 per cent in 2017-18, Jaitley said, “I am hopeful because (of) the pre- GST destocking, this would really be the bottoming out.”
He further said there are challenges ahead as growth in subsequent quarters will have to be higher to achieve the projected growth target.
Jaitley also pinned hopes on improvement in the services sector and indications of a pick-up in investments.
According to the CSO data, there was a slowdown in the agricultural sector, too. GVA in the first quarter was 2.3 per cent compared to 2.5 per cent in the same period last year.
Former chief statistician Pronab 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 per cent 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.
The CSO data further revealed that the rates of gross fixed capital formation (GFCF) at current and constant (2011- 2012) prices during the first quarter are estimated at 27.5 per cent and 29.8 per cent, respectively, up from the corresponding rates of 29.2 per cent and 31 per cent, in the first quarter of 2016-17.
India Inc and analysts have expressed disappointment on the data on economic activities and made case for improving ease of doing business and ways to increase private investment.