As capital formation slowed, the economy decelerated to its slowest in six quarters in the April-June period of 2016-17 raising fresh concerns over the robustness of the recovery.
The Central Statistics Office on Wednesday said the country’s GDP grew at 7.1 per cent in the first quarter. Yet, the Finance Ministry is optimistic of close to 8 per cent growth this fiscal.
“Given the good monsoon and the Seventh Pay Commission award, we expect growth this year to be higher than last year,” said Economic Affairs Secretary Shaktikanta Das, adding that the low growth in the first quarter was due to higher subsidy expenditure and lower net indirect taxes.
The April-June quarter number is lower than the 7.5 per cent expansion in Q1 of last fiscal and the 7.9 per cent growth in the last quarter of 2015-16.
GVA at basic prices up 7.3% Encouragingly, the gross value added at basic prices grew 7.3 per cent in the first quarter, marginally higher than the 7.2 per cent expansion a year ago.
Agriculture, mining and construction registered weak or no growth in the first quarter, offsetting the over 8 per cent growth registered in manufacturing, electricity generation, financial services, public administration and trade. Analysts remained upbeat about the growth, but raised concerns over falling investments. “Good agriculture will swing the growth higher in the next few quarters. We believe 7.9 per cent growth is possible this year with buoyant agriculture,” said DK Joshi, chief economist, Crisil, noting that real investment fell by 3.1 per cent in the first quarter.
“Government expenditure has helped the overall number by growing at almost 19 per cent in the first quarter while the investment momentum remains weak as it continued to show contraction,” said Anis Chakravarty, Lead Economist, Deloitte India.
While private final consumption expenditure, which indicates demand, grew 11.7 per cent, gross fixed capital formation, an indicator of investments, declined by 1.1 per cent in the first quarter.
Though the growth data will add to the clamour for a rate cut by incoming Reserve Bank of India Governor Urjit Patel in the next policy review on October 4, inflation continues to remain a key concern. The central bank refrained from lowering rates in its recent policy review.