STORY: India’s economy lost further steam as growth slid to its lowest level in more than three years because gross domestic product (GDP) grew 5.7 percent in the latest June quarter — its slowest pace since the January-March quarter 2014 — government data showed on Thursday (August 31).
It was a marked slowdown from a 6.1 percent growth in the January-March period and was far worse than the median forecast for a 6.6 percent in a Reuters poll. It was in line with the poll’s lowest estimate.
India’s Finance Minister, Arun Jaitley, said the GDP figure was a matter of concern and the government needed to improvise its policies to meet the challenges.
However, in a silver lining for Asia’s third-largest economy, the services sector gathered steam, posting a growth of 8.7 percent in the latest quarter, up from 7.2 percent in the previous three months.
Capital investment also rebounded from a 2.1 percent contraction in the March quarter.
Though, Jaitley admitted that de-stocking of goods ahead of the launch of a new goods and services tax (GST) seemed to have dampened economic activity but ruled out demonetisation of high value notes as a cause.
Prime Minister Narendra Modi’s decision last November to scrap high-value old banknotes — a bid to flush out the money Indians hide from tax officials — wiped out about 86 percent of currency in circulation virtually overnight.
While his drive to unearth unaccounted wealth did not deliver the desired result, it hurt consumer demand in an economy where most people are paid in — and buy what they need with — cash.
The data will be unwelcome to Modi, who is facing criticism for disrupting activity by scapping high-value banknotes, creating a shock cash squeeze last year.
Since then, an improvement in high frequency indicators such as sales of two-wheel vehicles, oil consumption, cargo traffic and rail freight raised hopes that the impact of the cash clampdown had bottomed out.