Against the backdrop of a week of optimism from the government on the positive effects of demonetisation last year, the results of the exercise have not done wonders for India's gross domestic product (GDP).
Data released on Thursday said that GDP grew just 5.7 percent in the latest quarter, its slowest pace since the January-March quarter 2014, and lower than the Central Statistical Organisation's estimates of 6.1 percent.
The slowdown was led by the manufacturing sector, which expanded at 1.2 percent from a year earlier compared with a 10.7 percent growth last year. The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.
In contrast, the Indian economy had expanded 7.9 percent expansion in the same quarter last year.
Thursday's data by the Central Statistics Office (CSO) showed that India's "real" or inflation-adjusted GDP grew at its slowest pace in 13 quarters and is still a long way off from returning to an 8 percent growth path, last seen in 2015-16.
Importantly, the CSO estimates showed that gross value added (GVA) grew 5.6 percent in April-June lower than the last year's 7.6 percent growth during the same quarter. Crops account for around 60 per cent of the agriculture sector in GVA, while the balance comes from forestry and fishing, among other things.
GVA -- which is GDP minus taxes, subsidies, cost of inputs and raw materials – is beginning to be recognised as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the economy. It is a measure of total output and income in the economy.
The slowdown in the economy has delivered a blow to Prime Minister Narendra Modi who is facing criticism for disrupting business activity through his shock cash squeeze last year under the rationale of eliminating black money from the economy, said a Reuters report on Thursday.
Nevertheless, Finance Minister Arun Jaitley had in a PTI report earlier in the day, reiterated that the note ban move would benefit the economy in the medium and long term even if it hits GDP in two or three quarters.
Cash and demand crunch hit output
The government's move to denotify Rs 1,000 and Rs 500 currency denominations on the night of November 8, 2016 had wiped out nearly 86 percent of the currency in circulation overnight. It's primary consequence was the creation of a cash crunch and curbing of consumer demand in a country where people are predominantly dependent on cash to carry out their daily transactions.
Sandwiched between the government's demonetisation programme and the implementation of the Goods and Services Tax (GST), most experts had expected the GDP print to be at around six per cent.
The government said that the slowdown could be a one-off affair, given the largescale inventory clearance before GST's rollout, financial website Moneycontrol reported on Thursday.
GDP figures had clocked a 6.1 per cent growth rate in the January-March period — its lowest pace of growth in the past nine quarters, mainly due to demonetisation.
"The numbers seem to suggest that the slowdown from last the quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST," said Abheek Barua, chief economist with HDFC, told Reuters.
Barua said that HDFC would have to revise its GDP outlook numbers for the full year.
Fiscal deficit at 92.4% of full-year target
The economy has witnessed fiscal deficit of Rs 5.05 trillion (Rs 5.05 lakh crore) for the April-July period, or 92.4 percent of the budgeted target for the current fiscal year that ends in March 2018.
The deficit was 73.7 percent of the full-year target during the same period a year ago, government data showed on Thursday, Reuters said in a report.
Net tax receipts in the first four months of 2017-18 were Rs 2.58 trillion (Rs 2.58 lakh crore), government data showed on Thursday.
India aims to trim the fiscal deficit to 3.2 percent of gross domestic product in 2017-18 compared with 3.5 percent in the previous year.