New Delhi: Predicted by the Government economic planners and some others, India’s GDP growth was expected to show a marginal decline in the first quarter of the current fiscal, but the sharp decline (the report terms it as “free fall”) in the numbers shows that the problem is more due to ‘structural’ inadequacies rather than ‘transient’ factors, says a State Bank of India (SBI) research report.
India’s economic growth nose-dived to a three-year low of 5.7 per cent in April-June (2.2 per cent less than the same quarter an year ago), underscoring the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities. According to the report, the negative impact of the Goods and Services Tax (GST) on growth has been “majorly emphasised”. “Though there has been a lot of talk about manufacturing destocking ahead of GST and its impact on GDP, a significant destocking in both consumer as well as investment intensive sectors was already taking pace in 2016-17,” said SBIs research report Ecowrap.
This effectively means that the Government predictions of a minor fall in GDP growth due to steps like demonetization and implementation of GST have been proven wrong. The impact of these steps combined with ‘structural’ inadequacies has resulted in a sharp fall, much more than what was anticipated by government quarters. Former Prime Minister Manmohan Singh in his speech on impact of demonetization on Indian economy had pointed out that the step would result in 2 per cent decrease in GDP growth rate. The Government mandarins had then rubbished Singh’s speech as a political outburst, which lacked substance. However, 10 months down the line the real impact of demonetization as predicted by Singh has begun to show in the GDP growth figures, leaving the votaries of demonetization to do a serious rethink.
In further damnation of government claims, the SBI report goes on to say, “Combining all the factors, rebound in GDP growth is unlikely in coming quarters. It is only by the first quarter of the next fiscal that growth can witness an uptick provided asset resolution takes place by then.”
The “free fall” in growth is largely due to a sharp decline in manufacturing activities, which grew by just 1.2 per cent in the quarter ending June 2017,compared to 5.3 per cent in the quarter ending March 2017, and 10.7 per cent in the same quarter an year ago. In the face of such a decline, the government’s Make in India campaign seems to be merely an eyewash that has failed to address the real issues affecting the manufacturing sector.
Similarly, the growth in agriculture sector has slowed down to 1.2 per cent in the June quarter compared to 5.2 percent in the same quarter an year ago. This in the face of PM Modi himself showcasing Govt initiatives to increase farm income at every available opportunity. However, the biggest cause of worry for the government is the sluggish growth in investments in the country. The growth in investment stood at 1.2 per cent in the quarter-ending June compared to 5 per cent in the same period an year ago. It has, however, shown a marginal improvement over the previous quarter, which if sustained could be seen as a minor respite for government planners.