Expert views: Economic growth slows to 5.7% in April-June

02 September 2017, 12:24 | Isaac Mcdaniel

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India's Gross Domestic Product (GDP) data surprised analysts and economist, as touched to a three-year low in the first quarter of financial year 2017-18.

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India stated economic growth plunged below 6% as gross value added (GVA) at basic prices grew by 5.6% in Q1FY18 - a sharp 200 basis points less than the corresponding quarter of the previous year. In the earlier quarter, the rate of GDP was 6.1 percent.

Terming the Q1 GDP growth of 5.7 per cent as disappointing, a slew of foreign brokerages on Friday cut their full-year forecast to well under the 7 per cent being targeted by Government.

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 financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.

Remarking that the growth numbers for both GDP and GVA had "undershot" her expectations, rating agency ICRA's principal economist Aditi Nayar said this was "a thirteen-quarter low in GDP growth" and structural factors such as higher commodity prices, the onset of GST and the lingering effects of demonetisation could be major contributors. "Since it was announced that GST would come into operation from July 1, most manufacturers were de-stocking during period April-June".

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Services sector, especially trade, hotels and transport grew 8.7% as against 7% a year ago.

The data also showed that the sectors that would have been hit by demonetization were the ones which took the biggest hit to growth. "Its performance has been poor, though the sales growth is good", he added. Demonetisation, according to Sabnavis had impacted consumer demand and the SME segment. "I am confident that in the July-September quarter, economy will grow by 7-7.5 per cent".

Many analysts had expected the economy to bounce back after the government's crackdown on black market cash past year.

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".

"With due respect to my mentor Manmohan Singh, this quarterly data can not be used to say look GDP will drop by 1 -2.5 per cent". Having said that, we are in the middle of transformative phase and the GDP should be back to normalcy over the next couple of quarters, he added.

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