New Delhi: India’s economy unexpectedly slowed further to a three-year low in the quarter through June, delivering a blow to Prime Minister Narendra Modi who is facing criticism for disrupting business activity through his shock cash squeeze last year.
Gross domestic product grew 5.7%in the latest quarter, its slowest pace since the January-March quarter 2014, according to data released on Thursday.
That compared with a forecast of 6.6 percent growth by economists in a Reuters’ poll, and was slower than 6.1 percent growth posted in January-March.
Modi’s decision last November to scrap high-value old banknotes, in a bid to flush out the money Indians hide from the taxman, wiped out about 86 percent of currency in circulation virtually overnight.
While his drive to unearth unaccounted wealth did not deliver the desired result, it pounded consumer demand in an economy where most people are paid in, and buy what they need with, cash.
Confusion ahead of the launch of a new goods and services tax (GST) also seems to have dampened economic activity.
Industry sector has primarily dragged the Q1 FY’18 GDP growth to its lowest level in 13 quarters. Analysts polled by Reuters had forecast annual growth of 6.6% in the quarter.
HDFC Bank chief economist Abheek Barua pointed out that the numbers “are certainly disappointing”.
“The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST (goods and services tax) destocking. A rate cut from RBI now becomes more and more probable, not immediately, but over the next 6 months. We have to revise our GDP outlook numbers for the full year closer or perhaps lower than 7 percent,” Barua stated.
Infra growth up slightly
Annual infrastructure output growth accelerated to 2.4% in July, driven up mainly by higher electricity and steel production, government data showed on Thursday. The output grew a revised 0.8% year-on-year in June.
For April-July, the annual output growth was 2.5 percent, data showed. Electricity production grew 5.4 percent last month from a year ago, faster than a 2.2 percent rise in June. Steel output in July was 9.2 percent on year compared with a 5.8 percent growth a month ago.