India's GDP Slumps To 5.7% On Back Of New Tax, Note Ban

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"The lingering impact of demonetisation is visible in the low growth of construction".

"GDP at constant (2011-12) prices in Q1 of 2017-18 is estimated at Rs 31.10 lakh crore, as against Rs 29.42 lakh crore in Q1 of 2016-17, showing a growth rate of 5.7 percent", the Ministry of Statistics and Programme Implementation said in a statement today.

Gross domestic product grew 5.7 percent in April-June, its slowest pace since the January-March quarter 2014, government data showed. Bank of America Merill Lynch (BofAML) said the GDP growth is "about 5 per cent", which is much below the 7 per cent potential under the old series of computation.

Earlier, Chief Statistician T.C.A. Anant told reporters the principal reason for the decline in growth is a fall in manufacturing sector which saw a growth of 1.6 percent during the quarter. Anant said as companies have now adjusted to GST, inventory has returned to normal levels which will help revive growth.

"We, however, see GDP growth picking up in the third quarter".

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GVA - which is GDP minus taxes, subsidies, cost of inputs and raw materials - is beginning to be recognised as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the economy.

"A major sector that has seen a sharp decline is industry". Expressing concern, Finance Minister Arun Jaitley said manufacturing growth rate seems to have bottomed out as GST has been implemented and destocking of pre-GST stocks is nearly complete.

The mining sector showed a dismal performance during the quarter with a 0.7 per cent contraction in output. "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". It raises the likelihood of the Reserve Bank delivering a growth-propping rate cut later this year, some analysts said.

The Finance Minister said demonetisation will benefit in the medium and long term even if it hits GDP in two or three quarters, and one more benefit was that the economy will gain due to formalisation of the informal sector. Unless there is a pick up in these figures, one can not expect an improvement in the jobs scenario.

SBI said, "However, the growth rate in service sector was under fortuitous circumstance, as the Trade sub segment growth jumped because of destocking ahead of GST and was also boosted by increased competition in the sector and adoption of wireless broadband services with the entry of Reliance Jio".

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