Free Fall In GDP Numbers Structural, Not Temporary: SBI Report

India's GDP growth was expected to decline in the first quarter of the current fiscal, but the "free fall" in the numbers shows that the problem is more structural than transient, says a report.

India's economic growth slipped to a three-year low of 5.7 per cent in April-June, underscoring the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities. According to the report, the negative impact of the Goods and Services Tax (GST) on growth has been "majorly emphasised".

"Though there has been a lot of talk about manufacturing destocking ahead of GST and its impact on GDP, a significant destocking in both consumer as well as investment intensive sectors was already taking pace in 2016-17," said SBI's research report Ecowrap. With fiscal deficit touching 92.4 per cent of the budget estimate by the end of July, the government may cut expenditure to meet the 3.2 per cent target, the report stated.

In absolute terms, fiscal deficit -- the difference between expenditure and revenue -- was Rs. 5.04 trillion of budget estimate till July, against 73.7 per cent in the same period last fiscal.

The report, however, was quick to point out that with the uncertainties involving GST and monetary policy support to growth not forthcoming, it will not be prudent on the part of government to reduce spending as other growth drivers are missing. There is no harm if the government spends the proceeds arising out of better GST collection to push capex rather than shore up revenue numbers, it suggested.

The report, which analysed data of 1,695 listed firms, noted that there is significant destocking in both consumer and investment intensive sectors in 2016-17, implying that "there was general slowdown amidst which companies have been running down the existing inventory". Investment intensive sectors, it said, were more affected by the general slowdown and uncertain environment in 2016-17 while consumer intensive sectors have been more affected by demonetisation.

Further analysis of a sample of 2,306 listed companies whose results are out for the first quarter of this fiscal showed that 40 out of 69 sectors have shown quarter-on-quarter decline in sales and this is much lower than the 2016-17 growth rates, it said.

Important sectors in manufacturing like capital goods, consumer and engineering goods have performed dismally and this is a cause for concern, it added.

"Combining all the above factors, rebound in GDP growth is unlikely in coming quarters. It is only by the first quarter of the next fiscal that growth can witness an uptick provided asset resolution takes place by then," the report noted.