India's Q1 GDP growth slows down to 5.7%

India's $2 trillion economy is getting its biggest tax reform since the country became independent in 1947

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. The sector's growth fell steeply to 1.2 per cent in the June quarter, compared to 10.7 per cent in the same quarter previous year.

GDP figures had clocked a 6.1 per cent growth rate in the January-March period - its lowest pace of growth in the past nine quarters, mainly due to demonetisation.

After a disappointing first quarter, India's GDP is expected to grow around 6.4 per cent in 2017-18, according to an SBI Research report.

India Inc on Thursday expressed disappointment over slowing down of India's GDP growth to 5.7 per cent in the June-ended first quarter of the current fiscal, as the industry was anticipating a rebound from low growth numbers.

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

In contrast, the Indian economy had expanded 7.9 percent expansion in the same quarter previous year.

ICRA principal economist Aditi Nayar said the combination of lower volumes and higher discounts offered to reduce inventories ahead of GST, and the turnaround in average WPI inflation weighed upon the manufacturing.

There was a marginal decline in the growth of agriculture, forestry and fishing at 2.3% against 2.5% growth last year, whereas growth in electricity, gas, water supply and other utility services came down to 7% against 10.3% growth last year.

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". Analysts polled by Reuters had forecast annual growth of 6.6% in the quarter. This (5.7 percent) is the lowest for the last 13 quarters. Cash-intensive sectors, including construction and real estate, that bore the brunt of demonetisation impact appear to be recovering smartly.

The figures, coming after India's moral victory at Doklam standoff, could be some embarrassment for the Indian government as India's GDP growth has now slipped below that of China.

"Manufacturing bottomed out in the first quarter, but services improved", Jaitley said, adding that since monsoon has been good overall, it should have a positive impact on the economy.

"Even though the crop production side has seen an increase compared to a year ago, overall agriculture comes in marginally lower because of the other elements of agriculture, which is principally animal husbandry that is slightly lower", the Secretary in the Statistics and Programme Implementation Ministry said.

Manufacturing growth has gone down from 3.1 per cent to 1.6 per cent. Jaitley reasoned that the decline is due to the impact of GST. We don't expect any rate cuts from here on.

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