The Indian economy slowed to 5.7 percent in April-June, sharply lower than last year’s 7.9 percent expansion in the same quarter and marginally slower than the 6.1 percent growth in January-March, signs that the country was still smarting under demonetisation’s adverse effects.
Data released on Thursday by the Central Statistics Office (CSO) showed that India’s “real” or inflation-adjusted GDP growth is still some distance away from returning to the 8 percent growth, last seen in 2015-16.
India also continues to lag China in the global growth rankings. China, which grew at 6.9 percent in the last two quarters, has bounced back as the world’s fastest growing major economy since January, regaining the status from India after two years.
Importantly, the CSO estimates show that gross value added (GVA) grew at 5.6 percent in April-June 2017, worryingly lower than the last year’s 7.6 percent growth during the same quarter.
GVA growth has significantly fallen in the last few quarters, slipping to 5.6 percent in January-March. GVA, which is GDP minus taxes, serves as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the economy.
GDP growth may have raced ahead of GVA driven by strong indirect tax collections in April-June, masking a not-so-bullish state in factories and firms.
The effect of the sudden flushing out of high-value notes in November 2016 and the resultant slowdown in household spending and corporate investment may well be hiding in the slower GVA growth estimates compared to what the headline GDP numbers suggest.
The widespread de-stocking by companies and traders ahead of the switchover to Goods and Services Tax (GST) from July 1 may have also had an impact on the broader economy’s growth.
Companies had significantly scaled down production in June as part of a business strategy to carry over as little old stock as possible into July, triggering an unexpected mid-year pre-GST “sale” season on many products at heavy price markdowns.
The farm sector stood out as a growth hotspot aided by the timely arrival of monsoon rains. It grew at 2.3 percent in April-June against 2.5 percent in the same quarter last year and 5.2 percent in January-March.