Demonitisation, pre-GST destocking reasons for drop in Q1 GDP

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In the first quarter of the year 2017-18, the rate of gross domestic product (GDP) has dropped significantly.

India's economy grew at a slower than expected 5.7% during the last quarter, its lowest rate for three years.

India's economic growth shrank to 5.7% in the first quarter of the current financial year compared to 6.1% growth in the previous quarter with the government Thursday attributing it to the introduction of a new composite tax.

The national income data released by the Central Statistics Office (CSO) for the first quarter is lowest during the Narendra Modi-led government's regime, which assumed office in May 2014.

The slowdown was led by the manufacturing sector, which expanded at a mere 1.2 per cent compared with a 10.7 per cent growth in the same quarter past year as confusion over GST took its toll.

Chief Statistician T.C.A. Anant said that the primary reason for the decline in growth was a fall in the manufacturing sector.

India's economic growth unexpectedly slowed to its lowest in more than two years, dragged down by construction, manufacturing and trade services, and stripping the country.

Although growth was already slowing, Modi's decision last November to scrap high-value old banknotes - a bid to flush out the money Indians hide from tax officials - wiped out about 86 percent of currency in circulation virtually overnight. Jaitley said that most manufacturers were destocking and thier sales cont to increase, leading to an improvement in the services growth.

The Q1 GDP numbers are concerning the government. the GDP data from Q1 challenges the government to revive and improve the growth rate, he said.

"Slowdown of the economy was witnessed after the second quarter past year itself. The decline of GVA could be due to the factors like lingering impact of demonetization and destocking activities undertaken ahead of GST implementation".

"Growth numbers indicate a moderation in agriculture and industrial sectors". Unless there is a pick up in these figures, one can not expect an improvement in the jobs scenario.

The gross fixed capital formation or investment has witnessed a marginal growth of 1.6 percent during the quarter from the 2.1 percent contraction in the previous quarter.

In absolute terms, the amount ranged between Rs 8.5 lakh crore and Rs 9.4 lakh crore.

Thus, demonetisation and GST both had their share of impacting India's GDP growth in Q1FY18. In its annual report, RBI said that nearly 99% of the notes that were banned by the government past year found their way back in the system in the form of deposits. "However, de-stocking has now been completed, and therefore we can expect production to go up", he said.

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