Q1 GDP growth hits 3-year low of 5.7%, slowest under Modi govt

Economic growth plunged to an over three-year low of 5.7 per cent in April-June. This is lower than the 6.1 per cent growth in gross domestic product (GDP) in January-March, considered the period worst affected by last year’s demonetisation. And, this is also the lowest growth registered for any quarter under the Narendra Modi government at the Centre.

Gross value-added (GVA) grew by 5.6 per cent in April-June, the same rate as in January-March, according to the data released by the Central Statistics Office.

GDP growth is down from 7.9 per cent in April-June 2016-17 and 7.5 per cent in the second quarter of that year. GVA grew 7.6 per cent and 6.8 per cent in the first and second quarters of 2016-17.

Besides demonetisation, there was there were the effects of destocking in June in anticipation of the roll-out of the goods and services tax (GST).

Growth in manufacturing declined to 1.2 per cent in April-June, from 5.3 per cent in January-March. Mining and quarrying contracted 0.7 per cent during the quarter, after growing 6.4 per cent in the previous quarter.

Electricity and related sectors grew 7 per cent, against 6.1 per cent; and trade, hotels, communication grew by 11.1 per cent, against 6.5 per cent. 

Construction growth was up 2 per cent, against a contraction of 3.7 per cent, even as the real estate sector remained in a slump, and the monsoon arrived on time in June.  Financial, real estate and professional services grew 6.4 per cent, against 2.2 per cent, but the real estate part did poorly. 

Chief Statistician T C A Anant attributed this to structural, including regulatory, issues. Construction growth was essentially due to an infrastructure boost provided by the government. 

Agriculture growth lost pace at 2.3 per cent, against 5.2 per cent in the previous quarter, and 6.9 per cent in October-December, 2016-17. Growth in public administration also slowed to 9.5 per cent, from 17 per cent. 

Gross fixed capital formation was up 1.6 per cent, against a fall of 2.1 per cent in the previous quarter. The growth rate was the same as in October-December 2016, the period of demonetisation. Even then, investment is yet to revive to the growth rate of 3 per cent in the second quarter of 2016-17 and 7.4 per cent in the first quarter of that year. 

Public final consumption expenditure expanded at a slower rate of 6.6 per cent during April-June, against 7.3 per cent in January March. 

Anant attributed the slowdown to high prices of intermediate goods. Another key reason was the high de-accumulation of inventory during the first quarter, he added.

“The numbers seem to suggest that the slowdown has intensified due to the combination of a long-term slowdown and temporary shocks like demonetisation and GST destocking,” said Abheek Barua, chief economist of HDFC Bank.

Anjali Verma, economist, PhillipCapital India, however, said the effects of demonetisation had faded. "The next quarter’s impact will be that of the GST. It will be a one-quarter phenomenon. In the medium to long term, it is expected to be positive,” she added. 

“Our full-year GVA growth estimate of 6.8 per cent needs to be revisited,” said Radhika Rao, India economist, DBS Bank. 

• Agriculture growth slows to 2.3% in Q1FY18, from 5.2% in Q4FY17
• Manufacturing growth to 1.2%, from 5.3%
• Mining contracts by 0.7%, from growth of 6.4%
• Electricity growth up 7%, from 6.1%
• Construction grows 2%, from contraction of 3.7%
• Growth in trade, hotels, transport, communication up 11.1%, from 6.5%
• Growth in financial, real estate and professional services up 6.4%, from 2.2%
• Growth in public expenditure, defence and other services slows down  to 9.5%, from 17%
• Investment growth slightly picks up to growth of 1.6%, from contraction of 2.1%
• Growth in private  final consumption expenditure - denoting demand - down to 6.6%, from 7.3%