EFFECT OF DEMONETISATION? GDP growth down to 5.7%, Jaitley says it’s worrisome

India’s economy unexpectedly slowed to a three-year low in the April-June quarter, official data showed on Thursday, signalling that disruptions from last year’s cash squeeze caused by demonetisation were far from over.

Gross Domestic Product (GDP) grew 5.7% in the last quarter, undershooting market expectations, compared to 6.1% in the three months to March. The drop was even sharper when compared to the similar quarter a year ago when GDP expanded at 7.9%.

The slowdown suggested the underlying momentum in the economy was still weak, posing a challenge to Prime Minister Narendra Modi’s government that must produce jobs to absorb a million people entering the work force every month.

“Certainly a matter of concern that first quarter GDP has come down to 5.7% and it’s obvious therefore that it throws up challenge for the economy,” Finance Minister Arun Jaitley said.

A sharp fall in mining, manufacturing and construction proved a drag on the broader economy, as consumer demand stayed muted even nine months after the government decided to scrap about 86% of cash in circulation to fight corruption.

A rush to clear inventories ahead of the Goods and Services Tax (GST) rollout affected manufacturing growth, Jaitley said. The April-June data, however, does not take into account the impact of the new tax regime launched on July 1.