Government says Apr-Jun GDP hurt due to GST, not demonetisation

By: | Published: August 31, 2017 6:50 PM

The government sought to put a major part of the blame for slowing growth on its ambitious tax reform GST saying that a major reason for the disappointing performance of GDP in the fiscal first quarter was mainly on account of manufacturing, which mainly relies on the corporate sector.

Manufacturing growth in the first quarter of the current financial year plummeted to 1.2% from 10.7% in the same quarter a year ago. (Image: Reuters)

While India’s Apr-Jun GDP growth at 5.7% might have come as a rude shock to many, with the fingers obviously pointing to the impact of demonetisation shock of late last year continuing into slowdown this year, the government sought to put a major part of the blame for slowing growth on another ambitious reform: GST. A major reason for the disappointing performance of GDP in the fiscal first quarter was mainly on account of manufacturing, where 74% GVA (gross value addition) comes in from corporate sector, government’s chief statistician TCA Anant said on Thursday.

Manufacturing growth in the first quarter of the current financial year plummeted to 1.2% from 10.7% in the same quarter a year ago due to two factors: one was the rise in prices, which pushed the costs of intermediate goods much higher; and another was very high level of inventories drawdown and destocking as businesses rushed to clear the stocks ahead of the implementation of GST, TCA Anant, chief statistician, Central Statistics Office, said today.

Discarding the concerns that it was the demonetisation which primarily impacted the GDP growth, TCA Anant said that the GVA decline began in the second quarter of the last financial year, much before the note ban was announced. However, it was for the first time ever that an inventory deaccumulation of this level was seen in the last quarter, TCA Anant said. GST anticipation might have been a factor, he added.

Earlier today, the government figures showed that India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in Ap-Jun and pitting the country behind China on the list of world’s fastest growing major economies. The 5.7% fiscal first quarter GDP growth was much lower than the 7.1% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter. India’s Apr-Jun growth rate also fell way behind a Reuters poll of over 40 economists, which had predicted 6.6% expansion. Neighbouring China last reported a 6.9% GDP growth. Earlier this week, Reuters said that the analysts polled by it are sounding increasingly worried that confusion over the newly-implemented GST will dampen activity in coming months.

TCA Anant said that going forward, there should be a rebound in the current quarter, owing to the usual inventory build up in anticipation of festive season, which would be compressed over a shorter period this year. However, it would also depend on how the companies integrate input tax credit, he added.

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