Arun Jaitley on GDP growth: Impact of GST, demonetisation now behind us

The gross fixed capital formation a leading indicator for investment in the country grew 4.7% in the September quarter up from just 1.6% in the previous one

GDP Growth Recovers to 6.3% in September Quarter

GDP growth has been affected partly due to fall in growth in the manufacturing sector over the years. "We should wait for the growth rates over the next 3-4 quarters before we can reach a definite conclusion".

Arun Jaitley said the rise in GDP growth rate to 6.3 per cent in the July-September period of 2017-18 signals a reversal of downtrend witnessed over the preceding five quarters. (See charts) But what could worry policy makers is a positive correlation between high growth rates in the manufacturing sector with the rise in total GVA in the economy.

In simple terms GDP measures a country's economy.

In a tweet, the chief minister drew paralells with the GDP figure in the same quarter previous year. The previous low of 4.6% was recorded in January-March quarter of 2014. But once again the high base effect of the last two quarters of 2016-17 will come as a challenge for agriculture to recover from the current anaemic growth rate of just about 2 per cent in the first half of the current financial year.Construction, too, does not show any signs of a revival.

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In the last 12 months, Modi government withdrew most of high-value banknotes from circulation in a snap move known as "demonetisation" and rolled out a national goods and services tax.

Economic activities that posted over 6 per cent Y-o-Y growth include manufacturing, electricity, gas, water supply, trade, hotels and so on. "Real private consumption growth has broadly held steady at 6.5 percent". "Dip in public administration has also hampered the Q2 growth", Associate Economist with Care Ratings, Rucha Ranadive told Zeebiz. Gross domestic product grew 6.3 per cent in July-September, its fastest pace in three quarters, the data showed. In Q2FY17 it was 7.5%, in Q2FY16 it was 7.6% and in Q2FY15 it was 8.4%. 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. "However, the overall GDP growth has been affected partly due to declining growth in the manufacturing sector over the years", Ranadive explained.

Finance Secretary Hasmukh Adhia said the GDP number may go up when it is finally revised. Since the final data of GST is still awaited, it could have hampered the growth numbers in Q2.

She further added, "Lower collections after disruptions caused by GST implementation could have affected the growth". This is one message policy makers can not ignore while they interpret the economic growth numbers for July-September 2017, released by the Central Statistics Office on Thursday. 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). This could portend a resurgence of inflationary pressures on food prices that would limit the room for growth-supportive monetary action by the Reserve Bank of India.

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