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Financial News: India GDP Growth At 3-year Low

India GDP Growth At 3-year Low

08/31/2017 - 10:56:00 (RTTNews)

(RTTNews) - India's economic growth slowed to its lowest level in three years during the June quarter as activity was impacted by the roll out of the Goods and Sales tax in an economy that continued to reel under the strain of the government's shock demonetization move from last November.

Gross domestic product grew 5.7 percent year-on-year in the June quarter, preliminary data from the Central Statistics Office showed Thursday.

Economists had expected the growth rate to improve to 6.5 percent from 6.1 percent logged in the previous quarter.

Latest growth rate was the lowest since the March quarter of 2014. In the June quarter of 2016, growth was 7.9 percent.

In terms of Gross Value Added, which is the preferred measure for the Reserve Bank of India, growth was 5.6 percent in the June quarter versus 7.6 percent a year ago.

The government's Chief Statistician TCA Anant attributed the weakness in growth to de-stocking by firms, mainly manufacturers, ahead of the implementation of the GST on July 1.

Indeed, manufacturing grew just 1.2 percent versus 10.7 percent expansion in the same period last year. Financial services sector growth was 6.4 percent compared to 9.4 percent a year ago. Farm sector growth was a modest 0.3 percent versus last year's 9.9 percent.

The official expects a revival to take place in the September quarter as firms return their stocks to normal levels after incorporating the changes due to the GST.

Anant also pointed out a rise in prices as another reason for the slowdown in the economic growth, but ruled out the demonetization as a cause for the latest weakness.

Prime Minister Narendra Modi's shock move to cancel the legal tender status of the INR 500 and INR 1,000 currency notes last November, in a bid to curb the menace of unaccounted cash or 'black money' and fake currency, was hailed a masterstroke then though it caused a lot of hardship for the public.

However, the RBI annual report released on Wednesday suggested the move apparently failed to yield expected success and the cost may have exceeded the benefits.

The central bank report said about 99 percent of the cancelled currency notes were deposited with banks, thus debunking the government's claim that trillions of rupees would not return to banks as they were unaccounted cash or 'black money'.

As the cost increased, the RBI's profit halved in the financial year 2017 that ended on March 31.

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