GDP Growth rate comes down to 5.7% in April-June

GDP Growth rate comes down to 5.7% in April-June- Back to back historic reforms have slowed down The Gross Domestic Product (GDP) growth rate to a three-year low in the April-June quarter. Gross Domestic Product (GDP) grew at 5.7% in the last quarter. GDP growth rate was 6.1% in January-March quarter. Currently GDP is growing at its slowest pace.

It was expected Gross Domestic Product (GDP) growth rate comes down due to demonetization shock and the biggest ever roll out of the goods and services tax regime. Indian economy is struggling to recover from demonetization shock and GST regime, but it seems like it has become far difficult to recover.

Slow GDP growth rate signaling that business was still hurting from last year’s shock cash squeeze as well as disruptions ahead of the rollout of a new tax regime.

Official data released on Thursday showed, the drop was even sharper when compared with the April-June quarter a year ago when GDP grew at rate of 7.9%.

It became very challenge for Prime Minister Narendra Modi’s government that must produce masses of jobs to absorb a million people entering the workforce every month. As slowdown gives a sneak-peak of underlying momentum in the economy is still weak.

During the April-June quarter manufacturing and construction sectors grew at just 1.2% and 2% respectively. mining sector output saw a 0.7% contraction year-on-year. This offset comparatively strong growth in services and a moderate growth in farm output.

Union Finance Minister Arun Jaitley said “Certainly a matter of concern that first quarter GDP has come down to 5.7% and it’s obvious therefore that it throws up challenge for the economy.”

GDP growth lost because of a sharp fall in manufacturing, mining and construction sectors. Where demand remained muted even after nine months when the government decided to scrap Rs. 500 and Rs. 2000 notes from the market. At the time of demonetization the contribution of Rs. 500 and Rs. 2000 notes was about 86% of the cash in circulation. Step was taken to fight with corruption and black money.

Arun Jaitly said “A rush to clear large inventories ahead of the Goods and Services Tax (GST) rollout also affected manufacturing.”Jaitley said, adding that the drawn-down in stocks is complete so the dip in the sector could be bottoming out. The April-June data, however, does not take into account the impact of the new tax regime launched on July 1.

An economist Aditi Nayar said “The lingering impact of demonetisation is visible in the low growth of construction.”

Abheek Barua, chief economist of HDFC said “The numbers seem to suggest that the slowdown from last the quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST.”

The Economic data which was released on Thursday came a day after the Reserve Bank of India (RBI) said all but 1% of the demonetised banknotes had been returned to the banking system.

Yesterday government has said its fiscal deficit at July-end touched 92.4% of the budget. Last year in the same period of fiscal deficit was 73.7% of the target.

Thursday’s disappointing figures are prompting economists to review their full-year growth estimates.


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