Demonetisation, pre-GST destocking reasons for drop in Q1 GDP: Experts

Mumbai, New Delhi: Experts feel demonetisation and huge destocking before the launch of the Goods and Services Tax (GST) can be the reasons for the unexpected slow down of India’s economic growth to 5.7 percent in the June quarter, the slowest pace in three years.

Market expert Sunil Shah, while speaking to the media on the same, said that this plunge might have an impact on the estimated revenues of direct and indirect taxes.

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“According to me, it is partly because of demonetization and partly because it was the last quarter before GST was implemented. So there was a huge destocking taking place. So that could be one thing. If you see to the growth as far as manufacturing is concerned, apart from agri and services, it has underperformed grossly. So I think, because of the GST factor, manufacturing activities have slowed down,”

Adding, “It is a major disappointment for the government, the overall economy and for the capital markets. The broader consistence expectation was around 6.6 percent and if you see last quarter of the previous year, we closed at 6.1 percent. This (5.7 percent) is the lowest for the last 13 quarters. So it is a major disappointment for the investors, for the economy and for the government. This may have impact on the estimated revenues of direct taxes and indirect taxes. So, we are going forward to a difficult time and let’s hope things improve from Quarter 2 of this year.”

While pointing out the reasons behind this downfall of GDP in the first quarter of this year, economist KK Mittal said, “Our growth has come down even from the Chinese rate of growth, if we compare the two.”

“In China, they are growing by 6.2 percent and our growth rate has now slowed down to 5.7 percent. Various sectors of the economy have not performed, be it mining or agriculture, manufacturing, industrial sector or service sector,” he said.

“This may be the impact of demonetisation, destocking before the launch of GST, disruption in the economy due to bad loans, less of capital formation, less of investment by the private sector- all these have accumulated to the lower GDP. Now let us hope for some reversal in the second quarter. But, if this is the rate of GDP going forward, then achieving eight percent GDP looks difficult,” he added.

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India’s economy unexpectedly slowed further to a three-year low after the Gross Domestic Product (GDP) in the first quarter (Q1) of 2017-18 was estimated at Rs.31.10 lakh crore, as against Rs. 29.42 lakh crore in the corresponding quarter of 2016-17, thus registering a growth rate of 5.7 percent.

Meanwhile, Quarterly GVA with the basic price at constant (2011-2012) prices for Q1 of 2017-18 was estimated at Rs. 29.04 lakh crore, as against Rs. 27.51 lakh crore in Q1 of 2016-17, showing a growth rate of 5.6 percent, stated an official release published by the Central Statistics Office ( CSO) on Thursday noted.

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