At 5.7%, Q1 GDP growth slumps to 3-year low

K. R. Srivats New Delhi | Updated on January 10, 2018



Q1 GDP: India facing challenges in growth

Uncertainty over GST and related de-stocking hit industrial sector in Q1, says Anant

Three key macro-data points released on Thursday presented a worrying picture of the economy, adding credence to the Reserve Bank of India Monetary Policy Committee’s recent fears of slower growth.

The keenly-awaited first-quarter GDP growth number came in at 5.7 per cent, a three-year low and far lower than the 7.9 per cent GDP growth recorded in the same quarter last fiscal and the 6.1 per cent recorded in the January-March quarter.

The key factor

Briefing reporters, Chief Statistician TCA Anant said the main factor for the drop in GDP growth rate was a sharp fall in ‘industry’ performance. But it would be incorrect to attribute the fall in manufacturing Gross Value Added growth to the ‘demonetisation effect’, he noted.

According to Anant, the slump in ‘manufacturing GVA’ could be attributed in large part to the apprehensions among the trading/dealer community over the impact of the July 1 GST rollout, which prompted them to go in for de-stocking of inventory in a big way in June.

Anant said the overall GVA for the April-June 2017 quarter came at 5.6 per cent, lower than 7.6 per cent in same quarter last fiscal. The GVA growth for ‘manufacturing’ came in at 1.2 per cent in the quarter, substantially lower than the 10.7 per cent growth recorded in the same quarter last fiscal.

He pointed out that 74 per cent of manufacturing GVA was accounted for by the corporate sector. “Corporate sector performance in GVA has been poor,” Anant said.

He, however, expressed confidence that ‘manufacturing GVA’ will rebound in the second quarter (July-September), the first quarter period after GST. While most ‘services’-related GVA did well, the trend in construction, which dipped to 2 per cent from 3.1 per cent earlier, was disappointing, partly due to the structural constraints faced by the real estate sector during the quarter, according to Anant.

Anis Chakravarty, Lead Economist, Deloitte in India, said the fall in GDP growth number is on account of temporary shocks in combination with an overall slowing of the economy. “There is likely to be some bounce-back in the coming quarters as GST-related issues are resolved while the clean-up of bank balance sheets is likely to impart a downward bias,” he said.

Aditi Nayar, Principal Economist, ICRA Ltd, said restocking post-GST and a favourable base effect are likely to contribute to higher GDP and GVA growth in the remaining quarters.

Nevertheless, the likelihood of growth surpassing 7 per cent for the fiscal year has diminished after today’s readings, she said.

The eight core industries output growth for July 2017 was disappointing at 2.4 per cent, lower than 3.1 per cent in the same month last fiscal. The core industries output for April-July grew 2.5 per cent against 6 per cent in the same period last fiscal.

The fiscal deficit for July indicated a huge challenge before the government in meeting the target of 3.2 per cent of GDP this fiscal.

Fiscal deficit in 2016-17 was 3.5 per cent of GDP. With the front-loading of its spending, the Centre’s fiscal deficit touched 92.4 per cent of the full-year target between April and July.

Data released by the Controller General of Accounts on Thursday showed that the fiscal deficit had risen to ₹5,04,896 crore by July 31, against the Budget target of ₹5,46,532 crore for 2017-18.

Revenue deficit had shot up to ₹4,22,272 crore, 31 per cent in excess of the Budget Estimate of ₹3,21,734 crore.

Published on August 31, 2017

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