GDP growth slows to 3-year low of 5.7 percent in pre-GST Q1

Uncertainty about new indirect tax rates under GST prompted a host of industries, including garment manufacturers, to clear their stocks. Representation pic

India's GDP growth slumped to a three-year low of 5.7 per cent during April-June - lagging China for the second straight quarter - as manufacturing slowed ahead of the GST launch amid demonetisation effect. China clocked 6.9 per cent growth in January-March as well as April-June quarters.

The expansion in gross domestic product (GDP) was 6.1 per cent in the preceding quarter and 7.9 per cent in the same period last fiscal. The previous low of 4.6 per cent was recorded in January-March 2014.

Gross value added (GVA) in the manufacturing sector fell sharply to 1.2 per cent, from 10.7 per cent year on year, as the businesses focussed more on clearing inventories rather than production ahead of the July 1 launch of GST.

A separate set of official data showed that growth of eight core sectors slowed to 2.4 per cent in July due to contraction in output of crude oil, refinery products, fertiliser and cement.

Uncertainty about new indirect tax rates under GST prompted a host of industries, including carmakers, FMCG companies and garment manufacturers, to clear their stocks. Demonetisation of high-value currency notes in November last year impacted economic activities in the January-March quarter as GDP growth slipped to 6.1 per cent and further to 5.7 per cent in the three months to June.

Chief Statistician T C A Anant attributed the fall to the decline in inventories ahead of the rollout of GST as businesses re-labelled existing stocks and fashioned new ones in accordance with the new tax regime. The drop in growth, he asserted, was not linked to note ban. Anant further said that as companies took to GST, inventory has returned to normal levels which will help revive growth.