RBIs task gets complicated as analysts lower Indias GDP forecast

Key Highlights: 

• India's GDP growth at 5.7% in Q1FY18
• Gross Value Added growth came in at 5.6% 
• Demonetisation and GST impacted Indian economy in Q1FY18

India's GDP growth in first quarter of current fiscal reached a three-year low, at 5.7%. In the previous quarter, GDP stood at 6.1% and at 7.9% in the corresponding period of the previous year.

Such tepid performance came in as a surprise as analysts and economist expected the number to be at 6.6%.

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%).

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India said that 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.

Ghosh said, “We 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.”

CRISIL has trimmed its FY18 growth forecast for India by 40 basis points to 7% from 7.4% earlier. 

It said, “This fiscal would see some added headwinds in the form of GST related disruptions, even as the economy tries to recover from the impact of last year’s demonetisation drive.”

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