GDP growth boards slow train at 5.7%:

GDP growth boards slow train at 5.7%:

Context

• India’s GDP grew at 5.7% between April to June this year, considered the slowest pace recorded in 13 quarters or since the NDA government assumed office in May 2014.

The slagging of GDP growth.

• It was led by a sharp decline in industrial activity ascribed largely to an inventory drawdown by firms ahead of the rollout of GST from July 1.
• GDP growth in the last quarter of 2016-17 was 6.1%, marking a steady decline from the 7.9% clocked in the April to June quarter.
• The gross value added (GVA) in the economy grew at 5.6%, same as the previous quarter but sharply lower than the 7.6% growth in the first quarter of the last year.
• It is the sixth continuous quarter marking a decline in growth.

Effect on Industrial sector

• The major decline in growth is on account of industry, which comes in at 1.6% compared to 7.4% last year.
• Industrial output grew by 3.1% in the previous quarter, one of the worst quarter for the manufacturing sector in five years.
• Most part of this dip was due to the rise in input costs as well as an unprecedented “high level of inventory de-accumulation” in the first quarter.
• Firms were then worried if the GST regime would grant them input tax credits for output generated before its implementation.
• With this anticipation of the GST price-levelling effects, there are chances of revival in the stocks in the second quarter.

What needs to be taken care of?

• While interpreting the manufacturing data, the negative wholesale price inflation (WPI) trends should be kept in check.

Service sector

• The services sector did fairly well, growing at 8.7% compared to 9% in the same quarter last year, the gross value added by the agriculture sector dipped from 2.5% in the first quarter of last year to 2.3%.