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Thanks to Demonetization and GST, India's GDP growth hit a 4-year low at 6.5 per cent.

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Thanks to Demonetization and GST, India's GDP growth hit a 4-year low at 6.5 per cent.


Thanks to Demonetization and GST, Indias GDP growth hit a 4-year low at 6.5 per centIndia's economic growth in 2017-18 is estimated to drop to a four-year low of 6.5 per cent against the 7.1 per cent in 2016-17. This will be the lowest growth rate under the BJP government, which is largely attributed to the adverse impact of the goods and services tax (GST) and the prolonged effects of demonetization. 
Central Statistics Office (CSO) on Friday released the first Advance Estimate for India's GDP growth, which showed that the pace of agricultural expansion is expected to fall by more than half (from 4.9 per cent in the previous year to 2.1 per cent in FY18) due to the decline in kharif crop output year-on-year.

Highlights from the Advance Estimate data:

  • The data also showed substantial rural distress as the agricultural output inflation rate as measured by GDP deflators, is expected to fall to 0.7 per cent against 4.1 per cent over this period. This development may set the direction of the budget, which is less than a month away
  • The overall GDP growth rate is not only estimated to be lower than what was predicted by the Economic Survey in the range of 6.75-7.5 per cent, but is also just a tad bit higher than the 6.4 per cent registered in 2013-14
  • However, it is much higher than the 5.5 per cent in 2012-13, a year known for policy paralysis

India may not be the 'fastest growing large economy'

With the drop in the GDP growth, India might lose the tag of being the fastest growing large economy to China if the forecasts of the International Monetary Fund (IMF) come true. The IMF has projected that China will grow by 6.8 per cent in 2017.
Growth in gross value added (GVA) is predicted to fall to under 6.1 per cent in Fiscal Year 2018, which is much lower than RBI's forecast of 6.7 per cent.

GST's impact on the economy

  • GST not only impacted manufacturing in the second quarter of fiscal year 2018 when it was rolled out, but also in the first quarter due to pre-implementation jitters
  • GSt also impacted the net taxes as these are projected to grow only 10.9 per cent in the current financial tear against 12.8 per cent in the previous year
The GST collection council had cut rates for over 200 items in October and November, which might impact collections.
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