Slowdown-hit Indian economy counts costs of stronger rupee

Posted September 02, 2017

Overall economic expansion cooled to 5.7 percent in the June quarter, data released on Thursday showed, its slackest pace in more than three years. The economy had expanded at 6.1 per cent in the March quarter and at 7.9 per cent in the April-June quarter of the previous year.

After a disappointing first quarter, India's GDP is expected to grow around 6.4 per cent in 2017-18, according to an SBI Research report.

Anant said the slowdown in the first quarter to 5.7 per cent was due to de-stocking by firms as caution ahead of the GST roll-out on July 1. "So I think, because of the GST factor, manufacturing activities have slowed down", he said.

The sectors that registered strong growth were the ones that did well after demonetisation: financial services grew at 6.4% while trade, hotels, transport and communication grew 11%.

June quarter economic growth is lower than expected.

Sahil Kapoor and Shobana Krishnan analysts at Edelweiss Financial Services said, "High frequency consumption indicators like IIP-Consumer goods, Personal loans, credit cards, 2 wheeler and passenger vehicle sales have all seen growth too". However, for the last two quarters India lost the top slot due to the twin effect of demonetisation and GST.

"In the coming quarters, we really require, both in terms of policy and investment, to work and improve upon these figures", Jaitley said at a press briefing after the Centre released the latest GDP numbers. Demonetisation did not have any impact on demand, as shortage of cash declined from February.

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India aims to trim the fiscal deficit to 3.2 percent of gross domestic product in 2017-18 compared with 3.5 percent in the previous year.

"Principally, the major sector that has seen a sharp decline in industry", he said.

Another important matrix - gross fixed capital formation (GFCF) - that reveals corporate investment, also showed a dip.

That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi's crackdown on "black money".

"With due respect to my mentor Manmohan Singh, this quarterly data can not be used to say look GDP will drop by 1 -2.5 per cent".

Stating that results of the proceedings against major debtors would dictate how the banking situation improves, he said the process will take time. It raises the likelihood of the Reserve Bank delivering a growth-propping rate cut later this year, some analysts said.