GDP shocker: Apr-Jun growth at 5.7% misses estimate as demonetisation seems to continue to hurt

India’s GDP growth continued to disappoint for the second straight quarter, slowing down to a mere 5.7% in Apr-Jun and pitting the country behind China on the list of world’s fastest growing major economies. The 5.7% fiscal first quarter GDP growth, of an economy desperately trying to recover from the shocking impact of demonetisation, was much lower than the 7.9% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter.
India’s Apr-Jun growth rate also fell way behind a Reuters poll of over 40 economists, which had predicted 6.6% expansion. Neighbouring China last reported a 6.9% GDP growth. Earlier this week, Reuters said that the analysts polled by it are sounding increasingly worried that confusion over the newly-implemented GST will dampen activity in coming months.
Manufacturing growth in the quarter fell to a mere 1.2% vs 10.7% in the same quarter a year ago; while farm growth marginally slowed to 2.3% in the latest quarter from 2.5% in the previous year. Services sector, the biggest contributor to India’s economy, fell to 8.7% in Apr-Jun, from 9% in the corresponding quarter previous year.
Earlier, in the last financial year 2016-17, India’s economic growth in the fiscal fourth quarter (Jan-Mar) slowed to 6.1%, dragging the full-year growth down to 7.1%, as the full effect of demonetisation weighed on the economic activity. However, several experts had predicted a high economic growth phase in Indian economy after the blip in the fourth quarter.
“India’s GDP growth is set to accelerate in 2H17 (July-December), reflecting a balance in economic activity,” the largest oil producing bloc OPEC said its monthly report in July, adding that this would be despite the loss of momentum Jan-Mar due to demonetisation of high value currency notes in November 2016. Further, calling the effects of demonetisation as only temporary, OPEC had said that private consumption will continue to remain India’s major growth driver. The oil bloc expects India to expand its growth level to 7.5% in the year 2018.
A little before that, Harvard University said in a research study that India will be the base to the economic pole of global growth over the coming decade with a 7.72% growth rate annually, remaining ahead of China, whose economic growth will dramatically fall to 4.41% in the coming years until 2025. “The economic pole of global growth has moved over the past few years from China to neighbouring India, where it is likely to stay over the coming decade,” Havard’s Center for International Development said in a study.

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