Chanakya IAS Academy Blog

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GDP growth boards slow train at 5.7%

India’s GDP grew at 5.7% between April to June this year, the slowest in last 13 quarters. Finance Minister Arun Jaitley acknowledged that the growth numbers for the first quarter were lower than what most analysts expected and are certainly “a matter of concern”.

It was led by a sharp decline in industrial activity that officials ascribed largely to an inventory drawdown by firms ahead of the rollout of GST from July 1.

Growth statistics:

  • The biggest contributor to growth was private consumption, but consumption growth has been coming down
  • Growth in gross capital formation was a path as a pathetic 1.6% which indicates there is no sign of a revival in investment demand
  • Very surprisingly, expenditure on gold and jewellery, contributed as much as 42.2% to growth. This is at variance with the narrative of a shift in household assets from gold to financial instruments
  • The principal decline in growth is on account of industry,
  • It is the worst quarter for the manufacturing sector in five years, with growth at 1.2% compared to 10.7% in the same quarter last year
  • Mining activity also shrank by 0.7%, compared to a 6.4% growth last quarter
  • Services sector growth has been 7.8%, compared to 5.7% in the March. The silver lining thing is that the non-farm, non-government sector has grown faster than in the March quarter, which shows the effect of remonetization

Reasons for the decline in growth:

  • A large part of this dip was due to a rise in input costs, as well as an unprecedented high level of inventory de-accumulation in the first quarter
  • Firms were worried if the GST regime would grant them input tax credits for output generated before its implementation
  • If anticipation of the GST price-leveling effects caused it, then there may be a revival in the stocks in the second quarter
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