NEW DELHI: India’s economic growth unexpectedly slowed to its lowest in more than two years, dragged down by construction, manufacturing, trade services and controversial note ban, stripping the country of its status as the world’s fastest growing major economy.
Annual gross domestic product (GDP) growth for the January-March period came in at 6.1 per cent, compared with a provisional 7.0 per cent in the previous quarter, government data showed on Wednesday.
The expansion was much slower than the 7.1 per cent forecast by economists in a Reuters poll. It was also lower than China’s growth of 6.9 per cent for the first three months of 2017.
“This data is closer to the ground reality than the previous ones,” said Anjali Verma, an economist at PhillipCapital in Mumbai.
The figure is the lowest since the December quarter in 2014, which registered 6.0 per cent growth, data shows. For the 2016/17 fiscal year ending in March, New Delhi reported GDP growth of 7.1 per cent, slower than an 8 per cent expansion a year ago.
The weak GDP data will be a setback for Prime Minister Narendra Modi, who completed three years in office last week.
Modi has defended his move to remove all 500 and 1,000 rupee notes from circulation as a necessary strike against corruption. The government argues it will boost revenues by dissuading people from using cash, which makes it easier to avoid tax.
The move hit cash-dependent sectors like real estate, jewellery and agriculture, and triggered massive lines outside banks in the weeks afterwards as authorities struggled to print replacement notes fast enough.
While the full impact of the note ban is still not known, analysts had expected a pick-up in the fourth quarter.
“[The fourth quarter] clearly shows that demonetisation has had an impact on the overall growth for the economy,” Sunil Sinha, principal economist at Fitch India said.
“Now that cash is by and large back in place, that confidence is back with consumers that they no longer have to stand in queues and that cash will be available when they need it,” he added.
Wednesday’s figures, however, have not changed expectations for monetary policy. Analysts still expect the Reserve Bank of India (RBI) to keep interest rates on hold.
“We continue to expect the RBI to remain on pause, with any rate hikes ruled out,” said Shubhada Rao, chief economist at YES Bank.
Construction activity contracted 3.7 per cent year-on-year in the March quarter compared with a 3.4 per cent growth in the prior quarter. Manufacturing grew 5.3 per cent in the last quarter from a year ago, slower than an annual rise of 8.2 per cent. Growth in trade, hotels and transport services slowed to 6.5 per cent in the January-March period from 8.3 per cent a quarter ago. — Reuters/AFP
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