India's
GDP growth slumped to a three-year low of 5.7 per cent during
April-June -- lagging China for the second straight quarter -- as
manufacturing slowed ahead of the GST launch amid demonetisation
effect. China clocked 6.9 per cent growth in January-March as well as
April-June quarters. The expansion in gross domestic product (GDP)
was 6.1 per cent in the preceding quarter and 7.9 per cent in the
same period last fiscal. The previous low of 4.6 per cent was
recorded in January-March 2014. Gross value added (GVA) in the
manufacturing sector fell sharply to 1.2 per cent, from 10.7 per cent
year on year, as the businesses focussed more on clearing inventories
rather than production ahead of the July 1 launch of GST.
Uncertainty about new
indirect tax rates under GST prompted a host of industries, including
carmakers, FMCG companies and garment manufacturers, to clear their
stocks. Demonetisation of high-value currency notes in November last
year impacted economic activities in the January-March quarter as GDP
growth slipped to 6.1 per cent and further to 5.7 per cent in the
three months to June.
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 per cent. According to the 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 similar period last year.
Chief Statistician T C A Anant attributed the
fall to the decline in inventories ahead of the rollout of GST as
businesses re-labelled existing stocks and fashioned new ones in
accordance with the new tax regime. The drop in growth, he asserted,
was not linked to note ban. Anant further said that as companies took
to GST, inventory has returned to normal levels which will help
revive growth.
Former chief
statistician Pranab 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.