GDP growth expands to 6.3 per cent, boost to govt

New Delhi: In a relief for the Narendra Modi government, India’s GDP growth finally picked up in the second quarter (July to September) of 2017-18, expanding by 6.3 per cent mainly due to good performance by the manufacturing sector.

This reversed the trend of continuous deceleration in the nation’s economic activity seen in the past five quarters at a time when the government took the controversial decision to demonetise old currency notes of Rs 500 and Rs 1,000 last year and implemented the Goods and Services Tax (GST) in July this year.

The GDP had fallen to a three-year low of 5.7 per cent in the previous quarter (April to June 2017-18). “This indicates perhaps the impact of two significant structural reforms — demonetisation and GST — is now behind us and hopefully in the coming quarters we can look forward to an upward trajectory,” said finance minister Arun Jaitley after the GDP data was released. He said the important thing to note was that growth has come due to the strong performance of the manufacturing sector. “The deceleration in overall growth witnessed since the first quarter of the last fiscal has been reversed,” added the finance minister.

The manufacturing sector grew by 7 per cent in the second quarter against 1.2 per cent in the first quarter as companies started restocking after the implementation of GST. As per the data, electricity and other utilities grew by  7.6 per cent (from 7 per cent in the previous quarter) and trade, transportation and communications expanded by 9.9 per cent (from 11 per cent in the previous quarter).  The agriculture sector, on which a large section of the population,  specially in rural areas, are dependent for their livelihood, saw a slower growth of 1.7 per cent in the second quarter, against 2.3 per cent in the first one.

The services sector too slowed down to 7.1 per cent during the quarter. The rate of growth of gross fixed capital formation increased from 1.6 per cent in the first quarter to 4.7 per cent in the second quarter.

Former finance minister P. Chidambaram said the growth rate of 6.3 per cent was far below the “promise of the Narendra Modi government and far below the potential of a well-managed Indian econom”. In a series of tweets, he said: “This is a pause in the declining trend of the last five quarters. But we cannot say now whether this will mark an upward trend in the growth rate. We should wait for the growth rates over the next 3-4 quarters before we can reach a definite conclusion.”

Chief statistician T.C.A. Anant hinted that the GDP numbers could be revised upwards in future as businesses uncertain of the new GST regime may have accounted for lesser taxes.

Ratings agency Crisil said that growth is expected to pick up to 7.6 per cent in the second half of the current fiscal, helped by the low-base effect. “However, GST implementation glitches, ongoing changes in the GST structure, and a possible cut in capex due to rising fiscal stress may limit the upside in the subsequent quarters,” it  said in a note.