Business Description
The slowdown in economic growth in the first quarter of 2017-18, while not exactly a source of joy, is no cause for despair. Growth is likely to recover from the second quarter onwards. That growth would take a hit in Q1was entirely predictable. One, there has been a secular trend in growth of gross value added, quarter after quarter, since the fourth quarter high of 8.7% in Q4 of 2015-16.
Demonetisation depressed the growth rate all the way to 5.6% in Q4 of 2016-17. It was scarcely surprising that Q1 growth this year would resemble growth in the preceding quarter, considering that even as remonetisation was taking off some of the strain caused by missing cash, uncertainty over what to do with held over stocks once the goods and services tax (GST) kicked in on July 1 induced a rush to get rid of existing stocks without fresh orders to manufacturers to replenish them.
Missing cash and GST-wary decumulation of stocks are transient problems that are unlikely to affect growth directly in subsequent quarters. But the factor that has been driving a secular trending down of growth since the last quarter of 2015-16 is with us for the foreseeable future.
This is a massive slowdown in private sector investment. True, the government has been stepping up fixed capital formation out of its funds, but the compulsions of fiscal discipline do not offer the government much scope to expand. State governments account for 56% of general government expenditure.
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