Narendra Modi Gets Another Bad News, This Time on GDP

GDP growth nosedives to 5.7% in first quarter which is a three-year low. Finance Minister Arun Jaitley worried.

Narendra Modi

After the sour news delivered by the RBI yesterday on 99% of demonetised currencies coming back to the system, Prime Minister Narendra Modi got another shocker. This time on the Gross domestic product or GDP front. According to report released today, GDP growth nosedived to a three-year low of 5.7 per cent in the April-June quarter. The figures have worried Finance Minister Arun Jaitley.

In the March quarter, the economy had expanded at 6.1% and 7.9 % in the April-June quarter last year.

This nosediving of the GDP has again put a question mark on demonetisation. But there is a sharp divide on this issue. Some economists feel that the shadow of demonetisation loomed large on the GDP growth while others said it was the lacklustre performance of small and medium-sized enterprises that massively pulled down the GDP graph.

GDP

Admittedly, there has been a slump in manufacturing sector growth. The sector’s growth fell steeply to 1.2 per cent in the June quarter, compared to 10.7 per cent in the same quarter last year. The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.

Investment in India has been another factor. While Rera hit the construction sector, the country did not witness any big ticket investments.

Another major factor to be flagged for negative growth of the GDP is the massive destocking that took place ahead of the July 1 launch of the goods and services tax (GST).

GST

But economists feel that the effect of the GST is yet to be felt.

Economists feel that the GDP will grow at 6.6 per cent in the June quarter.

For the first time, Finance Minister Jaitley admitted that he is worried. He said the June quarter data “is a matter of concern.”

Arun Jaitley
Finance Minister Arun Jaitley

“It is quite obvious that it therefore throws up a challenge for the economy. In the coming quarters, we really require, both in terms of policy and investments, to work more to improve upon these figures,” he said soon after the data was released.

According to Jaitley’s assessment, the slowdown in the June quarter was due to a “pre-GST effect” implying destocking ahead of the rollout of the new tax regime. He, however, remained optimistic of growth recovering in the coming quarters. “The domestic public investment is certainly going to be quite high because the revenues trend seems to be positive, global economy is improving faster than what we thought, monsoon picture continues to be good and destocking exercise seems to have been completed,” he said.

But there is some silver lining to the dark clouds over the Indian economy. According to global brokerage Nomura, economic activity in India, which had lost some momentum in the run-up to the GST rollout, has started to recover.

Former finance minister was quick to react. In a tweet, he said 1.5% decline in GDP amounts to a loss of Rs 1.5 lakh crore and 2% means Rs 3 lakh has been lost.

Raj Shankar

Shankar Raj is a senior journalist with more than 30 years experience, mostly with The Indian Express and The New Indian Express. He was the Editor for Karnataka and Kerala editions of The New Indian Express, and former Managing Editor of the Nyusu Digital Media P Ltd. Bengaluru.

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