India loses fastest-growing economy tag as gov’t puts faith in new sale taxes

India loses fastest-growing economy tag as gov’t puts faith in new sale taxes

NEW DELHI - Reuters
India’s gross domestic product data produced another shock on May 31 as economic growth unexpectedly slumped to its lowest in more than two years in the March quarter, stripping the country of its status as the world’s fastest growing major economy.

After the release of the worse-than-expected figures, the country’s finance minister underlined the importance of planned goods and services taxes for a lift. 

The annual economic growth of 6.1 percent in the January-March period was even lower than the lowest analyst’s estimate of 6.5 percent in a Reuters poll. Overall, the median forecast of 36 analysts was for a year-on-year growth of 7.1 percent.

It was also lower than China’s growth of 6.9 percent for the first three months of 2017.

The March quarter growth figure is the lowest since the December quarter in 2014, when the economy registered 6 percent growth, according to Reuters data.

While economists largely expected a spillover effect of Prime Minister Narendra Modi’s decision last November to scrap high-value old banknotes on economic activity, the extent of the slowdown was unexpected.

India’s economy should receive a lift from the launch of a new sales tax, Finance Minister Arun Jaitley said June 1, putting a brave face on a slowdown in growth that followed a government crackdown on “black money.”

“There are several factors which can contribute to GDP in a particular quarter,” Jaitley told a news conference. “There was some slowdown visible, given the global and domestic situation, even prior to demonetization.”

He said the planned July 1 launch of a new goods and services tax (GST) would boost economic growth and the government was “in a state of preparedness” for the rollout.

However, some analysts say the launch might hurt near-term growth as businesses could delay production until they have clarity on the GST’s impact on existing stock.

Jaitley dismissed those concerns as “erroneous.”