India Q1 economic growth slips to 5.7 percent

NEW DELHI - Agence France-Presse

India’s growth slumped to 5.7 percent in the first quarter of the financial year, official data showed on Aug. 31, below predictions as a controversial banknote ban dragged further on the economy.

The figures released by the Central Statistics Office were lower than the 6.1 percent recorded in the previous quarter, and less than forecast by many analysts in one of the world’s fastest growing economies.

The slowdown bodes ill as India - a nation of 1.25 billion - tries to absorb tens of thousands of new jobseekers into the economy every month.

The official growth figures “undershot our, and market expectations, by a considerable degree”, Aditi Nayar, principal economist at rating firm ICRA, told AFP.

“The lingering impact of demonetization is visible” in some sectors, she added, referring to last year’s cash ban.

It also underscores India’s lag behind regional rival China, whose economy expanded at 6.9 percent over the same period.

“At 5.7 percent, it’s a big disappointment,” Madan Sabnavis, chief economist at CARE Ratings, told AFP.

“This is the lowest growth we’ve seen in the past couple of years and going to even 7.0 percent for this financial year will be a big challenge.”

In February, the government had forecast GDP growth of between 6.75 percent and 7.5 percent for 2017/18.

But in a survey released August, the government warned of looming forces threatening to drag on growth, including appreciation of the Indian currency and the roll-out of a national goods and services tax (GST).
Last year, India’s economy clocked 7.1 percent for the first quarter.

But since then Prime Minister Narendra Modi has rolled out two large economic reforms - the GST, and the snap withdrawal of most of India’s high-value banknotes from circulation.

Some economic disruption from the GST was expected this quarter, as businesses prepared for the onset of the new tax regime from July 1.

But experts say Modi’s sudden decision in November to withdraw all 500 rupee ($7.50) and 1,000 rupee notes from circulation is still dragging on economic growth.

The shock move rendered 86 percent of India’s currency void and caused a severe currency shortage, putting the brakes on consumer spending in a country dependent on cash transactions.

The move was blamed for poor growth figures of 6.1 percent in the first three months of this year.

Modi defended the so-called demonetisation as a necessary strike against corruption, arguing it would boost tax revenues and root out those hoarding cash to avoid paying their dues.

But on Aug. 30, the government received more flak when India’s central bank in its annual report revealed that nearly all the currency which was withdrawn from circulation had been deposited in banks, suggesting that little unaccounted cash had been hoarded to begin with.

On Aug. 31, the government’s chief statistician blamed the slump on a slowdown in manufacturing and not on the cash ban.

“One of the major reasons for fall in GDP growth for first quarter is because of a slowdown in manufacturing sector,” T.C.A. Anant told reporters.

“The data we saw from November onwards indicated the slowdown had started in second quarter of 2016,” he said. “The entire demonetization happened in later stages of 2016 but slowdown had started before that.”

Industry body PHD Chamber of Commerce and Industry called the growth data “disappointing” and said there was “a need to focus on reforms to improve the ease of doing business scenario particularly for [micro, small and medium enterprises] in order to encourage the setting up of more industries.”