NEW DELHI (TIP): Unable to recover from frequent policy disruptions, which started with demonetisation last November to Goods and Services Tax (GST) destocking and the new real estate law among others, India’s economic growth dropped to a three-year low of 5.7 per cent in April- June and in the process falling below China’s growth rate.

This is much lower than the revised growth of 7.9 per cent in the first quarter of 2016-17. Even on a sequential basis, the Gross Domestic Product (GDP) growth was 6.1 per cent in the preceding quarter.

Following the abysmal numbers, several analysts and brokerages said they would revise downwards the full-year numbers for GDP forecast.

Crisil said for fiscal 2018, it was in the process of revising down its GDP growth forecast of 7.4 per cent. Part two of the Economic Survey has already warned that reaching the upper end of the 6.5-7.5 per cent GDP forecast would be difficult.

Ever since the shock decision of demonetisation, the economy, which was already sluggish, has slumped further as businesses and consumers are adjusting to new disruptions, which at least in the short term are hurting growth.

Given the latest RBI figures, stating that only Rs 16,000 crore worth of scrapped Rs 500 and Rs 1,000 notes did not return to the system, the amount gained is miniscule compared to a much higher loss due to a hit in economic activity caused due to the note ban.

So while there was a fading impact of demonetisation left to be absorbed by industry, especially the informal sector, the fresh uncertainty came in the form of GST, which has been rolled nationwide as the indirect tax system.

Manufacturing has been worst hit in the first quarter of 2017-18 as the GST implementation from July 1 led to destocking of inventories much in advance. Manufacturing fell sharply in the quarter from 10.7 per cent to 1.2 per cent with the predominant pressure coming from the private sector small and medium-sized enterprise (SME) segment.

Finance Minister Arun Jaitley said the 5.7 pc GDP growth in Q1 was a matter of concern. Manufacturing was down due to GST impact on destocking and with GST implemented, the curve could turn for better, he added.Crisil Research said in a note that the government had also revised down gross value added (GVA) growth for the fourth quarter of last fiscal by 50 basis points (bps) to 5.6 per cent, suggesting that the impact of demonetisation on the economy was more than earlier estimated. Source: The Tribune