India's GDP growth falls to 5.7%, Economist blames demonetisation

Posted September 02, 2017

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. India's GDP slowed to 5.7% in the April-June quarter from 7.9% in the corresponding period past year.

GDP figures had clocked a 6.1 per cent growth rate in the January-March period - its lowest pace of growth in the past nine quarters, mainly due to demonetisation.

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 data released by the Central Statistics Office (CSO) came in below market expectations, which predicted it to be at least a tad higher than January-March growth figure of 6.1 percent.

The slowdown was led by the manufacturing sector, which expanded at a mere 1.2 per cent compared with a 10.7 per cent growth in the same quarter a year ago as confusion over GST took its toll.

He said there was a likely revival from the second quarter onwards as subsequently stocks would be restored to normal levels as the GST regime progressed. "There is a need to focus on the quality of growth rather than quantity, and for this we can afford to loosen our fiscal deficit target, spend more on investments rather than depend only on consumption to fuel growth". "Its performance has been poor, though the sales growth is good", he added. Nominal GVA slowed down to 7.9% - lower from 11.3% in last quarter. However, in the previous quarter the on-year fall was a deeper 3 percentage point. This was the lowest quarterly GDP growth recorded in the three years of the Narendra Modi government.

"Even though the crop production side has seen an increase compared to past year, overall agriculture comes in marginally lower because of the other elements of agriculture, which is principally animal husbandry that is slightly lower", the Secretary in the Statistics and Programme Implementation Ministry said. He said that Demonetisation has been proved as a disaster for our country.

Another important matrix - gross fixed capital formation (GFCF) - that reveals corporate investment, also showed a dip.

Speaking on the GDP data, Khemani said that GST, RERA and demonetisation had a short-term impact on the economy.

In a recent report, citing a report by the Reserve Bank of India (RBI), DBS Bank said every 1 percent rise in the rupee would affect the bottom-line of information-technology and outsourcing companies by as much as 40 basis points. "However, de-stocking has now been completed, and therefore we can expect production to go up", he said.