GDP growth slips to lowest in 3 years

GDP growth drops to a three-year low with 5.7 per cent in the first quarter.

India's economy unexpectedly decelerated last quarter with GDP growth dipping below 6% as the impact of New Delhi's cash crackdown seemed to hurt manufacturing more than expected.

"GDP at constant (2011-12) prices in Q1 of 2017-18 is estimated at Rs 31.10 lakh crore, as against Rs 29.42 lakh crore in Q1 of 2016-17, showing a growth rate of 5.7 per cent", a CSO release said.

The economy had recorded 7.9% growth in the same quarter (Apr-Jun) previous year (2016-17). The broader consistence expectation was around 6.6 percent and if you see last quarter of the previous year, we closed at 6.1 percent.

Second quarter GDP growth came in at 5.7%, the weakest since 2014, as demonetisation and the new nationwide GST tax weighs on the economy. "The trade, hotels, transport, communictation etc. sub-sector was the biggest driver of growth in Q1 FY2018, mirroring the transient discount-induced uptick in sales ahead of GST, as well as improvement in indicators such as rail freight, air cargo freight, fuel consumption etc", Nayar said in a statement. Farm sector growth was a modest 0.3 percent versus last year's 9.9 percent.

Meanwhile on the production side, the manufacturing sector saw its weakest growth in nearly two years. Demonetisation, according to Sabnavis had impacted consumer demand and the SME segment.

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"A major sector that has seen a sharp decline is industry".

The Finance Minister also said that manufacturing has 'bottomed out, ' services have improved and gross fixed capital formulation has turned positive.

Prime Minister Narendra Modi's shock move to cancel the legal tender status of the INR 500 and INR 1,000 currency notes last November, in a bid to curb the menace of unaccounted cash or "black money" and fake currency, was hailed a masterstroke then though it caused a lot of hardship for the public. So, we are going forward to a hard time and let's hope things improve from Quarter 2 of this year, " Sunil Shah said.

Going ahead, says Indranil Pan, group economist at IDFC Bank, "growth will be driven by GST (goods and services tax) and the pace of cleaning banks' balance sheets to improve the credit culture in the economy".

The economy has witnessed fiscal deficit of Rs 5.05 trillion (Rs 5.05 lakh crore) for the April-July period, or 92.4 percent of the budgeted target for the current fiscal year that ends in March 2018. "We are hopeful of a better fourth quarter, but that is crucially dependent on the outcome of resolution of stressed assets that falls due in the fourth quarter", said SBI.

  • Sonia Alvarado