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India's growth rate slows as new sales tax confuses firms

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GDP growth drops to a three-year low with 5.7 per cent in the first quarter.

India's economy grew at a slower than expected 5.7% during the last quarter, its lowest rate for three years. In the earlier quarter, the rate of GDP was 6.1 percent. It fell to 29.8 per cent of the GDP (in 2011-12 prices) from 31 per cent in the same quarter previous year, indicating that companies had not added capacity lines due to muted demand.

Key Indian equity market indices opened flat on Friday after the Central Statistics Office (CSO) data showed that the GDP growth of the Indian economy slumped to 5.7 per cent during April-June. Steel output in July was 9.2 percent on year compared with a 5.8 percent growth a month ago.

Economic growth in the second quarter (July-September) of 2017-18 is expected to soar to 7- 7.5 per cent on the back of good monsoon and clarity over GST, Niti Aayog's new Vice-Chairman Rajiv Kumar said today. "... With GST now being operationalised, this would be bottoming out as far manufacturing is concerned and probably the curve could turn up", the minister told reporters here.

Among the sector's that have seen 7 percent or more GVA are "trade, hotels, transport & communication and services related to broadcasting", "public administration, defence and other services" and "electricity, gas, water supply & other utility services".

Latest growth rate was the lowest since the March quarter of 2014. Jaitley said that most manufacturers were destocking and thier sales continued to increase, leading to an improvement in the services growth.

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Industry sector has primarily dragged the Q1 FY'18 GDP growth to its lowest level in 13 quarters.

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.

"Growth numbers indicate a moderation in agriculture and industrial sectors". "The lingering impact of demonetization is visible" in some sectors, she added, referring to last year's cash ban.

Dr. Anant said the slowdown in the economy had begun in the second quarter of past year itself, so one can't link it to the impact of demonetisation.

Capital investment also rebounded from a 2.1 percent contraction in the March quarter. But before that happens, policy actions and investment are both needed to ensure that economic growth picks up, he said. 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.

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