India's economic growth slumps as big reforms bite

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"Quarterly GVA at basic price at constant (2011-2012) prices for Q1 of 2017-18 is estimated at 29.04 lakh crore, as against 27.51 lakh crore in Q1 of 2016-17, showing a growth rate of 5.6 percent over the corresponding quarter of previous year", Ministry of Statistics & Programme Implementation said.

India's GDP growth dropped to a three-year low of 5.7 per cent during April-June as manufacturing dipped and the impact of demonetisation lingered on.

Even as the Centre was trying hard to defend Prime Minister Narendra Modi's 10-month old demonetisation move amid counter-claims that nearly established how the move to curb black money had failed miserably, the latest GDP figures - 5.7 per cent for the April-June quarter - have further strengthened the argument that noteban was bad for the economy.

The growth rate is lower than last year's 7.9 percent expansion in the same quarter as also the previous quarter's 6.1 percent growth indicating the shock and pressure of demonetisation and disruption by destocking activities undertaken by manufacturing firms caused ahead of GST's rollout.

The RBI estimates economic activity as measured by gross value added (GVA) to expand by 7.3 per cent in the current fiscal, up from 6.6 per cent in 2016-17, according to the central bank's annual report unveiled on Wednesday.

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Construction grew by 2% in April-June as against 3.1% in the same period last year, while Public administration, and other services grew by 9.5% in the assessed quarter against 8.6% growth last year.

Uncertainty about new indirect tax rates under GST prompted a host of industries, including carmakers, FMCG companies and garment manufacturers, to clear their stocks. Electricity production grew 5.4 percent last month from a year ago, faster than a 2.2 percent rise in June.

Sahil Kapoor and Shobana Krishnan analysts at Edelweiss Financial Services said, "High frequency consumption indicators like IIP-Consumer goods, Personal loans, credit cards, 2 wheeler and passenger vehicle sales have all seen growth too". These are the cash intensive sectors that took the worst hit after the demonetisation. It also underscores India's lag behind regional rival China, whose economy expanded at 6.9 percent over the same period. This (5.7 percent) is the lowest for the last 13 quarters.

Agriculture and industry sector where among the major laggards in the indicator of GVA. It strengthenedgovernment's belief that demonetisation had scarce impact on the economy.

Indians have deposited almost all the currency bills outlawed at the end of the deadline past year, dealing a blow to Prime Minister Narendra Modi's drive to unearth unaccounted wealth and fight corruption. Having said that, we are in the middle of transformative phase and the GDP should be back to normalcy over the next couple of quarters, he added. But before that happens, policy actions and investment are both needed to ensure that economic growth picks up, he said.

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