INDIA's Q1 GDP DOWN TO 5.7%

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.