GDP growth rate down to 5.7% in April-June, demonetisation pain lingers

The growth rate is the slowest pace at which the economy has expanded in three years, underlining the disruption caused by the roll out of the goods and services tax even as the economy struggles to recover from a shock demonetisation.

 

India’s economy unexpectedly slowed to a three-year low in the April-June quarter, signalling that business was still hurting from last year’s shock cash squeeze as well as disruptions ahead of the rollout of a new tax regime.

Gross Domestic Product (GDP) grew 5.7% in the last quarter, undershooting market expectations, compared to 6.1% in January-March period. The drop was even sharper when compared to the like-quarter a year ago when GDP expanded at 7.9%, official data released on Thursday showed.

The slowdown suggested the underlying momentum in the economy was still weak, posing a challenge to Prime Minister Narendra Modi’s government that must produce masses of jobs to absorb a million people entering the workforce every month.

“Certainly a matter of concern that first quarter GDP has come down to 5.7% and it’s obvious therefore that it throws up challenge for the economy,” Finance minister Arun Jaitley said.

The economy lost steam primarily because of a sharp fall in mining, manufacturing and construction sectors, where demand remained muted even nine months after the government decided to scrap about 86% of cash in circulation to fight corruption and counterfeiting.

A rush to clear large inventories ahead of the Goods and Services Tax (GST) rollout also affected manufacturing, Jaitley said, adding that the drawn-down in stocks is complete so the dip in the sector could be bottoming out. The April-June data, however, does not take into account the impact of the new tax regime launched on July 1.

While manufacturing and construction grew at just 1.2% and 2% respectively, mining output saw a 0.7% contraction year-on-year. This offset relatively robust expansion in services and a moderate growth in farm output.

with thanks : Hindustan Times : LINK : for detailed news report