Decline in GDP continues: Let's hope Modi doesn't inflict more misery on the economy

Thought the central government may be living in a denial mode, all data that has been released recently damns the government's claim that its move to demonetise a large chunk of Indian currency was successful.

The gross domestic product (GDP) numbers for the April-June quarter of the current fiscal (2017-18) show how economy unexpectedly slowed to a three-year low of 5.7% as against a 7.9% growth in the same quarter last year.

This comes at the heels of the damning data released by the Reserve Bank of India on 30 August. In its annual report, RBI said that almost 99% of the notes that were banned by the government last year found their way back in the system in the form of deposits.

The GST factor

It will be difficult to for the government to justify a 1.2% growth in the GVA (Gross Value Added) for the manufacturing sector in the April-June quarter against a growth of 10.7% in the corresponding period last year.

On expected lines, Finance Minister Arun Jaitley attributed the slowdown in the June quarter to a pre-GST effect.

"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, the monsoon picture continues to be good and destocking exercise seems to have been completed," said Jaitley.

'Certainly disappointing'

However, economists like Abheek Barua of HDFC Bank were more critical of the numbers.

"GDP numbers are certainly disappointing.The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST destocking," Barua told Reuters.

Barua now expects the full year GDP growth to be less than 7%.

Trade, hotel, transport, and services related to broadcasting were the only sectors that reported a decent growth of 11.1% in the period under review against a growth of 8.9% last year.

Mining and quarrying continued to disappoint with a decline of 0.7% in the quarter as against a negative growth of 0.9%.

Construction grew by 2% in April-June as against 3.1% in the same period last year, while Public administration, and other services grew by 9.5% in the assessed quarter against 8.6% growth last year.

There was a marginal decline in the growth of agriculture, forestry and fishing at 2.3% against 2.5% growth last year, whereas growth in electricity, gas, water supply and other utility services came down to 7% against 10.3% growth last year.

Madan Sabnavis, chief economist with Care Ratings in his note on GDP said, “Growth came in much lower than what was expected at 5.7%. We had expected growth of 6.5%. Growth was pulled down by mining, manufacturing and construction while trade, transport etc, finance and real estate, and public administration pushed up growth.”

Sabnavis also blamed factors such as GST and demonetisation for affecting growth. Demonetisation, according to Sabnavis had impacted consumer demand and the SME segment.

Though it is unlikely that the effect of demonetisation and the GST will be felt in the next quarter's GDP growth, especially because of a normal monsoon in the Kharif season, but you never know, when the Indian PM decides to come up with another 'historic' idea and leaves the whole country surprised and shocked.