India's economy grows at slowest pace since 2014

Xavier Trudeau
Juin 2, 2017

Growth was also supported by a rebuilding in businesses' inventories, which economists said could be reversed in coming quarters.

They believe that the roll-out of the GST from July 1 is also expected to push growth.

Glass half full: Business investment in machinery and equipment surged 5.8 per cent, the biggest quarter-to-quarter increase since the first half of 2011.

While the construction sector shrank by 3.7% in Q4 compared to growth of 3.4% in Q3, the mining sector grew by 6.4%, public expenditure by 17% and financial services by 2.2%.

India, which remained the fastest growing until December, has slowed down significantly in the fourth quarter with nearly all the sectors of the industry witnessing a sharp decline in activity.

Trade, hotels, transport and communication services sectors, which were growing at 8%-9% in the first three quarters, saw a deceleration of growth to 6.5% in the fourth quarter.

At the same time, manufacturing sector has been higher by 3.2% (Q4FY17) and 1.1% (Q3FY17) as against last two quarters of FY16 where it was negtaive 1% and 1.5%, respectively.

Annual economic growth at 6.1 percent in the January-March period was even lower than the lowest analyst estimate of 6.5 percent in a Reuters poll. This likely reflects the ramp-up in government expenditure during the year.

The former finance minister also said that between Q4 of 2015-16 and Q4 of 2016-17, growth declined by 3.1 per cent. But the data suggests that the recovery has been quicker than expected. Thus, was demonetisation responsible for the added deceleration, especially in quarter four? This lag in economic growth could pressurize the Reserve Bank of India (RBI) to cut policy rates in order to balance the need to encourage and incite growth with its inflation targeting focus.

Jaitley said that while the blip in economic growth is short-term, the NDA government has been able to restore the credibility of the Indian economy and the phasing out of corruption and indecisiveness would itself give a further fillip to economic growth.

The fall or slowdown will be interpreted in different ways, with the Opposition parties finding fault with the government decision to demonetize 86% of currencies in November previous year.

Other data released on Wednesday by the Commerce Ministry showed the country's eight core, or infrastructure, industries' output growth slowed to a three-month low of 2.5 per cent in April, caused by a slowdown in refinery output and a fall in coal production.

Will things turnaround next year?

- Canada's consumers, benefiting from a buoyant jobs market and rising home values, seem to be indefatigable. And if equity indices such as the Sensex and the Nifty - both have been high in this calendar year - are leading indicators, then the Indian economy is poised for a turnaround in the 2017-'18 financial year.

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