India’s growth slumped to 5.7 percent in the first quarter of the financial year, official data showed on Thursday, below predictions as a controversial banknote ban dragged further on the economy.
The figures released by the Central Statistics Office were lower than the 6.1 percent recorded in the previous quarter, and less than forecast by many analysts in one of the world’s fastest growing economies.
The slowdown bodes ill as India -- a nation of 1.25 billion -- tries to absorb tens of thousands of new jobseekers into the economy every month.
The official growth figures “undershot our, and market expectations, by a considerable degree”, Aditi Nayar, principal economist at rating firm ICRA, told AFP.
It also underscores India’s lag behind regional rival China, whose economy expanded at 6.9 percent over the same period.
“At 5.7 percent, it’s a big disappointment,” Madan Sabnavis, chief economist at CARE Ratings, told AFP.
“This is the lowest growth we’ve seen in the past couple of years and going to even 7.0 percent for this financial year will be a big challenge.”
In February, the government had forecast GDP growth of between 6.75 percent and 7.5 percent for 2017/18.
But in a survey released August, the government warned of looming forces threatening to drag on growth, including appreciation of the Indian currency and the roll out of a national goods and services tax (GST).
Last year, India’s economy clocked 7.1 percent for the first quarter.
But since then Prime Minister Narendra Modi has rolled out two large economic reforms -- the GST, and the snap withdrawal of most of India’s high-value banknotes from circulation.
Some economic disruption from the GST was expected this quarter, as businesses prepared for the onset of the new tax regime from July 1.
But experts say Modi’s sudden decision in November to withdraw all 500 rupee ($7.50) and 1,000 rupee notes from circulation was still dragging on economic growth.
The shock move rendered 86 percent of India’s currency void and caused a severe currency shortage, putting the brakes on consumer spending in a country dependent on cash transactions.
Modi defended the so-called demonetization as a necessary strike against corruption, arguing it would boost tax revenues and root out those hoarding cash to avoid paying their dues.
But it was blamed for poor growth figures of 6.1 percent in the first three months of this year.