Indian GDP growth hit a three-year low of 5.7% in the June quarter. The aftereffects of Notebandi and the Goods and Service Tax (GST) were mainly responsible for the slowdown. The growth was much lower than analyst estimates of around 6.6%.
Manufacturing growth stunted to 1.2% during the quarter compared to 10.7% a year ago. The transition to the GST regime affected the sector as dealers de-stocked and manufacturers offered discounts before GST took effect.
As we have been saying, GST is a much-needed economic reform. It should eventually expand India's narrow tax base and increase government revenues.
After this decline, the upcoming few quarters will be critical. Growth is expected to normalise as businesses start aligning themselves to the post-GST regime. But only growth will determine how well the Indian economy has adapted to GST.
Data Source: Ministry of Finance, Government of India