Demonetisation, GST were not the only reasons for three-year low GDP in Q1FY18

Key Highlights: 

• India's GDP at 5.7% in Q1FY18  compared to 6.1% in Q4FY17
• Gross Value Added (GVA) stood at 5.6% in Q1FY18
• Economist stated GST and demonetisation both impacted India's GDP growth

India's Gross Domestic Product (GDP) data surprised analysts and economist, as touched to a three-year low in the first quarter of financial year 2017-18.

As per Ministry of Statistics & Programme Implementation, GDP at constant (2011-12) prices in April – June 2017 is estimated at Rs 31.10 lakh crore, as against Rs 29.42 lakh crore in Q1 of 2016-17, showing a growth rate of 5.7%. Lower compared to GDP of 6.1% in January - March 2017 (Q4FY17) and 7.9% in April - June 2017 (Q1FY17).

Such tepid start of Indian economy in FY18 was definetly not expected as one would argue that GDP numbers was suppose to face shock of demonetisation coupled with uncertainties arising from GST implementation starting from July, 2017. 

Yet economists predicted on quarter-on-quarter basis the performance would be higher in Q1FY18.

Teresa John, Research Analysts at Nirmal Bang predicted India’s gross value added or GVA growth to come in at about 6.2% for 1QFY18 while gross domestic product or GDP is likely to register 6.6% growth.

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India stated economic growth plunged below 6% as gross value added (GVA) at basic prices grew by 5.6% in Q1FY18 – a sharp 200 basis points less than the corresponding quarter of the previous year.

Interestingly, both the nominal and real GVA saw deceleration in Q1 compared to Q4FY17. Nominal GVA slowed down to 7.9% - lower from 11.3% in last quarter. Similarly, the GVA deflator which was evident in Q4FY17, has now declined from 5.4% to 2.2% due to negative deflator in agriculture (-2.0%).

Ghosh said, “ We thus don't agree with the CSO narrative that the increase in WPI prices / higher GVA deflator was one of the reasons for slowdown in GVA growth. The decline of GVA could be due to the factors like lingering impact of demonetization and destocking activities undertaken ahead of GST implementation.”

Agriculture and industry sector where among the major laggards in the indicator of GVA.

GDP grew at 5.7% in first quarter