GDP growth down to 3-year low of 5.7% in April-June quarter of FY18

Illustration: Ajay Mohanty
The country’s gross domestic product (GDP) growth slowed to a three-year low of 5.7 per cent in the April-June period of 2017-18 from 7.9 per cent in the same quarter a year earlier, showed data released on Thursday by the Central Statistics Office.

The growth numbers for the latest quarter are even lower than the 6.1 per cent seen in the January-March quarter of last financial year, which was considered the period most affected by the immediate issues faced by the economy in the aftermath of the government's November 2016 decision to demonetise Rs 500 and Rs 1,000 currency notes.

Analysts polled by Reuters earlier had forecast a 6.6 per cent GDP growth rate on a year-on-year basis. A key reason for the decline in growth rate is seen as a de-stocking in June on account of uncertainty over goods and services tax (GST), which was to be rolled out from July 1.


Total gross value added (GVA) during the first quarter of 2017-18, on the other hand, stood at 5.6 per cent, against 7.6 per cent in the same quarter the previous year. Commenting on the low GVA figures, Chief Statistician T C A Anant said this was on account of high prices of intermediate goods. Another key reason, he said, was a high level of deaccumulation of inventory in the first quarter.

The slowdown was led by the manufacturing sector, which expanded at 1.2 per cent from a year earlier, compared with a 10.7 per cent growth last year. The financial, insurance, real estate and professional services sectors also slowed to 6.4 per cent in the June quarter from 9.4 per cent a year ago.

Among key sectors of the economy that saw an annual growth rate of over seven per cent were ‘trade, hotels, transport & communication and services related to broadcasting’, ‘public administration, defence and other services’ and ‘electricity, gas, water supply & other utility services’. Growth in the ‘agriculture, forestry and fishing’, ‘mining and quarrying’, ‘manufacturing’, ‘construction’ and financial, insurance, real estate and professional services was estimated at 2.3 per cent, -0.7 per cent, 1.2 per cent, 2.0 per cent and 6.4 per cent, respectively.

Quarterly GVA at basic prices for the April-June quarter of 2017-18 from ‘mining and quarrying’ sector declined by 0.7 per cent, against a decline of 0.9 per cent in the same quarter a year ago. The figures for the manufacturing sector was a growth of 1.2 per cent in the first quarter, against 10.7 per cent in the year-ago period.

On the impact of demonetisation on the economy, manufacturing GVA in particular, Anant clarified that it would not be right to connect the two.

Commenting on the numbers, HDFC Bank Chief Economist Abheek Barua said: “GDP numbers are certainly disappointing. The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST (goods and services tax) destocking.”

"A rate cut from RBI now becomes more and more probable, not immediately, but over the next 6 months. We have to revise our GDP outlook numbers for the full year closer or perhaps lower than 7 per cent.”

Anjali Verma, economist, Phillipcapital India, said: “The impact of demonetisation has faded, definitely. But the next quarter impact would be of GST, which will have an adverse impact on growth overall. GST impact is just a one quarter phenomena, or at best one month after that. But then in the medium to long term it's expected to be a positive.”


“I would expect GDP for the full year will be somewhere closer to 6 percent. We don't expect any rate cuts from here on. RBI will stay hooked on to inflation,” she added.

"The downside impact from demonetisation is no longer there. Going ahead, growth will be driven by GST and the pace of cleaning banks' balance sheets to improve the credit culture in the economy. In my opinion, the bank balance sheet problem will take a longer time than what others are expecting as it is not only cleaning the bad debt, but also improving capital base following mergers in the sector, said Indranil Pan, group economist, IDFC Bank.


"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."


Agriculture growth slows to 2.3% in Q1, FY'18 from 5.2% in Q4, FY '17
Manufacturing growth to 1.2% from 5.3%
Mining contracts by 0.7% from growth of 6.4%
Electricity growth up 7% from 6.1%
Construction grows 2% from contraction of 3.7%
Growth in trade, hotels, transport, communication up 11.1% from 6.5%
Growth in financial, real estate and professional services up 6.4% from 2.2%
Growth in public expenditure, defence and other services slows down  to 9.5% from 17%
Investment growth slightly picks up to growth of 1.6% from contraction of 2.1%
Growth in private  final consumption expenditure, denoting demand, down to 6.6% from 7.3%


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