<p>The growth of the economy at 7.8% in the first quarter of the ongoing financial year was unexpected. The rate is higher than the Reserve Bank of India (RBI)’s projection of 6.5% and the best estimates of most of the experts. The Gross Value Added (GVA) also registered a 7.6% growth, much higher than the 2.7% during the same period last year. There was a statistical push for the high growth rate because of an inflation adjustment, but the growth is still real and the highest among major economies. The nominal GDP growth was 8.8% which was the lowest in three quarters and much less than the 9.7% in the first quarter of the last year.</p>.<p>The outlook for growth is not as robust as the figures indicate because the first quarter cannot be taken as setting a trend for the rest of the year and beyond. Disaggregated data shows that agriculture grew at a healthy 3.7% and contributed well to the economy’s performance. A good monsoon has pushed up kharif cultivation, which bodes well for the sector and for rural consumption. However, the possible impact of the adverse weather in Punjab and Haryana is not yet known. The manufacturing sector grew at 7.7%. </p><p>Consumption, buoyed by the recent cuts in income tax and other government policies, went up by 7%. Improvement in the services sector is notable and an indication of enhanced returns in areas such as trade, transport, finance, and real estate. The sector saw a growth of 9.3%, much higher than the 6.8% in the same quarter last year, and the 7.3% in the preceding quarter. The restructuring of GST slabs may further encourage growth in consumption. Investment activity has been promising and government spending showed an increase from the same quarter last year.</p>.GST bonanza | From Roti to TVs, Cement to Insurance: What gets cheaper in the two-tier tax structure.<p>The economy will, however, face serious challenges in the coming months. The 50% tariff enforced by the United States will cause serious disruption to sectors such as textiles. These are labour-intensive manufacturing sectors and the connected livelihoods will be vulnerable to a large-scale impact. It will take time to identify alternative markets and to recover from the fallout since the tariff war has disrupted the global economy. While the lower tax rates and GST rationalisation may spur consumption, they are likely to result in lower revenue growth. The government will not only have to back the consumption push but also support those who will be adversely affected by the fall in growth.</p>
<p>The growth of the economy at 7.8% in the first quarter of the ongoing financial year was unexpected. The rate is higher than the Reserve Bank of India (RBI)’s projection of 6.5% and the best estimates of most of the experts. The Gross Value Added (GVA) also registered a 7.6% growth, much higher than the 2.7% during the same period last year. There was a statistical push for the high growth rate because of an inflation adjustment, but the growth is still real and the highest among major economies. The nominal GDP growth was 8.8% which was the lowest in three quarters and much less than the 9.7% in the first quarter of the last year.</p>.<p>The outlook for growth is not as robust as the figures indicate because the first quarter cannot be taken as setting a trend for the rest of the year and beyond. Disaggregated data shows that agriculture grew at a healthy 3.7% and contributed well to the economy’s performance. A good monsoon has pushed up kharif cultivation, which bodes well for the sector and for rural consumption. However, the possible impact of the adverse weather in Punjab and Haryana is not yet known. The manufacturing sector grew at 7.7%. </p><p>Consumption, buoyed by the recent cuts in income tax and other government policies, went up by 7%. Improvement in the services sector is notable and an indication of enhanced returns in areas such as trade, transport, finance, and real estate. The sector saw a growth of 9.3%, much higher than the 6.8% in the same quarter last year, and the 7.3% in the preceding quarter. The restructuring of GST slabs may further encourage growth in consumption. Investment activity has been promising and government spending showed an increase from the same quarter last year.</p>.GST bonanza | From Roti to TVs, Cement to Insurance: What gets cheaper in the two-tier tax structure.<p>The economy will, however, face serious challenges in the coming months. The 50% tariff enforced by the United States will cause serious disruption to sectors such as textiles. These are labour-intensive manufacturing sectors and the connected livelihoods will be vulnerable to a large-scale impact. It will take time to identify alternative markets and to recover from the fallout since the tariff war has disrupted the global economy. While the lower tax rates and GST rationalisation may spur consumption, they are likely to result in lower revenue growth. The government will not only have to back the consumption push but also support those who will be adversely affected by the fall in growth.</p>
