India’s economic growth slipped to a three-year low of 5.7 per cent in
April-June, underscoring the disruptions caused by uncertainty related
to the GST rollout amid a slowdown in manufacturing activities.
New Delhi, Sept 15:
India’s GDP growth is likely to face near-term headwinds and might slip
below 7 per cent mark to a three-year low this financial year, says a
DBS report.
According to the global financial services major, two recent policy
measures — demonetisation in November 2016 and GST rollout in July 2017
had a short-term impact on economic activity and aggravated the already
slowing momentum.
“These amplified the already weak trends in manufacturing and investment
growth, slowing first-half growth to 5.9 per cent from 7.9 per cent in
2016,” DBS said.
“For 2017-18, a weak June quarter and the likelihood of only a modest
improvement in July-September, prompts us to temper our full-year
expectations. We expect real GDP to average 6.8 per cent year-on-year in
2017-18 (as against 7.3 previously),” DBS said in a research note.
India’s economic growth slipped to a three-year low of 5.7 per cent in
April-June, underscoring the disruptions caused by uncertainty related
to the GST rollout amid a slowdown in manufacturing activities.
“Recovery is likely to be gradual, but below potential this year and the
next, with the resultant output gap keeping price pressures under
check. Until the private sector returns, government spending towards
capex and infrastructure will be crucial to take growth back above 7 per
cent,” DBS said.
The noteban curtailed cash availability, slowing consumption and hurting
cash sensitive sectors such as construction, trade, logistics, and
small and medium-size enterprises.
Moreover, weak demand and excess capacity weighed on manufacturing
output in early 2017, followed by destocking by retailers and
wholesalers ahead of GST implementation.
The report further said the second half of this financial year is
expected to witness an improvement in trend growth as the impact of
demonetisation is gradually fading, with the fallout from GST likely to
extend to the September quarter before fading out.