- Economists polled by Reuters had forecast GDP growth at 6.6%
- Destocking in the run-up to GST rollout impacted manufacturing growth
- Manufacturing growth slumped to 1.2% in Q1, compared to 10.7% last year
Economists polled by Reuters had forecast that the economy would grow at 6.6 per cent in the June quarter.
Finance Minister Arun Jaitley said the June quarter data "is a matter of concern.'
"It is quite obvious that it therefore throws up a challenge for the economy. In the coming quarters, we really require, both in terms of policy and investments, to work more to improve upon these figures," he said soon after the data was released.
Mr Jaitley attributed the slowdown in the June quarter to a "pre-GST effect", destocking ahead of the rollout of the new tax regime. The finance minister remained optimistic of growth recovering in the coming quarters. "The domestic public investment is certainly going to be quite high because the revenues trend seems to be positive, global economy is improving faster than what we thought, monsoon picture continues to be good and destocking exercise seems to have been completed," he said.
Chief statistician TCA Anant said the major reason for the decline in GDP growth was a slump in manufacturing growth. The sector's growth fell steeply to 1.2 per cent in the June quarter, compared to 10.7 per cent in the same quarter last year. The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.
Dr Anant also added that "wholesale price inflation (WPI) normalisation, not demonetisation, is majorly responsible for decline in GDP Q1 figures."
Abheek Barua, chief economist at HDFC Bank, said: "GDP 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,"
"We have to revise our GDP outlook numbers for the full year," Mr Barua added.
Prime Minister Narendra Modi's shock decision last November to scrap high-value old banknotes wiped out about 86 percent of currency in circulation overnight, pounding consumer demand.
Going ahead, says Indranil Pan, group economist at IDFC Bank, "growth will be driven by GST (goods and services tax) and the pace of cleaning banks' balance sheets to improve the credit culture in the economy."
Economic activity in the country, which had lost some momentum in the run-up to the July 1 Goods and Services Tax (GST) rollout, has started to recover, according to global brokerage Nomura. The GST tax collection is off to a good start, with collections exceeding the revenue target for the first month of July. Nearly one-third of tax payers are yet to submit their returns. Analysts say that collections are likely to go up as more tax payers pay their dues.
The RBI estimates economic activity as measured by gross value added (GVA) to expand by 7.3 per cent in the current fiscal, up from 6.6 per cent in 2016-17, according to the central bank's annual report unveiled on Wednesday. Real gross value added (GVA) is another measure of economic activity that is arrived at by excluding net indirect taxes from GDP.