More than demonetisation, pre-GST destocking weighed on Q1 GDP: Experts

Country's economy grew a much slower-than-expected 5.7% in the three months through June from a year earlier, down from a provisional 6.1% in the previous quarter, government data showed on Thursday.

ADITI NAYAR, ECONOMIST, ICRA

"The lingering impact of demonetisation is visible in the low growth of construction. The GDP and GVA (growth value added) estimates have undershot our and market expectations by a considerable degree. 

"The combination of lower volumes and higher discounts pre-GST (goods and services tax) and positive WPI (wholesale price inflation) weighed upon the manufacturing sector in Q1."

RADHIKA RAO, GROUP ECONOMIST, DBS, SINGAPORE

"Headline GVA and GDP growth estimates disappointed, despite the fading impact of demonetisation.

"Of concern, two key factors that provided support in the June quarter – i.e. trade, hotels and transport sectors that benefited from an increase in pre-GST sales, along with higher government participation reflected through the public administration sub-sector – are expected to moderate going forward.

"Some counter-support is, however, likely from an accumulation in inventories after a strong drawdown in the June quarter.

"In net, our full-year GVA estimate of 6.8% needs to be revisited. On the demand end, consumption pick-up was more moderate than anticipated, suggesting spending was not materially front-loaded ahead of the GST implementation.

"Private sector investments and manufacturing activity, weighed by low inventories and higher input costs, continue to be the weakest links in the growth story.

"These trends will prompt a downward revision in the RBI's GVA estimates, but we don't expect a knee jerk shift to an easing bias.

"A gradual rebound in headline inflation will keep them from imminent cuts, but the weakening demand trajectory certainly adds to the disinflationary trend in core trends."

ABHISHEK UPADHYAY, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP

"The outturn is weaker than expected. Instead of expected acceleration in government spending, there has been a sharp slowdown.

"Also, growth drag on industrial sectors on account of transition to GST (goods and services) appears to be much sharper than that suggested by high frequency indicators."

"But despite the overall poor optics around the headline growth that has printed in the 5% handle for the second quarter, there are silver linings.

"Despite industrial slowdown, private demand has recovered smartly on the back of services. Cash-intensive sectors, including construction and real estate, that bore the brunt of demonetisation impact appear to be recovering smartly.

"In terms of outlook, we continue to expect growth to recover smartly in the second half, although to still lower levels than pencilled in by RBI.

"Removal of drags from GST, spillovers from second consecutive year of good rains and tailwinds from more synchronized recovery in global demand should lift growth, even as government spending could remain a drag."

"We do not expect monetary policy committee to pursue any further accommodation, given that drivers behind weaker growth appear to be transitory."

ANJALI VERMA, ECONOMIST, PHILLIPCAPITAL INDIA, MUMBAI

"The impact of demonetisation has faded, definitely. But the next quarter impact will be of GST (goods and services tax), which will have an adverse impact on growth overall.

"GST impact is just a one quarter phenomena, or at best one month after that. But then in the medium to long term it's expected to be a positive.

"I would expect GDP for the full year will be somewhere closer to 6%. We don't expect any rate cuts from here on. RBI will stay hooked on to inflation."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK
 

"GDP numbers are certainly disappointing"

"The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST (goods and services tax) destocking".

"A rate cut from RBI now becomes more and more probable, not immediately, but over the next 6 months.

"We have to revise our GDP outlook numbers for the full year closer or perhaps lower than 7%."

INDRANIL PAN, GROUP ECONOMIST, IDFC BANK

"The downside impact from demonetisation is no longer going to be there.

"Going ahead growth will be driven by GST and the pace of cleaning banks' balance sheets to improve the credit culture in the economy.

"In my opinion, the bank balance sheet problem will take a longer time than what others are expecting as it is not only cleaning the bad debt, but also improving capital base following mergers in the sector.

"There is a need to focus on the quality of growth rather than quantity, and for this we can afford to loosen our fiscal deficit target, spend more on investments rather than depend only on consumption to fuel growth."