NEW DELHI • India's economy grew at the slowest pace in more than two years in the first quarter of this year, dragged down by Prime Minister Narendra Modi's cash ban in November and the weight of the country's bad bank debts.
The unexpectedly slowed growth stripped the country of its status as the world's fastest-growing major economy.
Annual gross domestic product (GDP) growth for the January- March period came in at 6.1 per cent, compared with a provisional 7 per cent in the previous quarter, government data showed yesterday.
The expansion was much slower than the 7.1 per cent forecast by economists in a Reuters poll. It was also lower than China's growth of 6.9 per cent for the first three months of this year.
"This data is closer to the ground reality than the previous ones," said Mumbai-based PhillipCapital economist Anjali Verma.
The figure is the lowest since the December quarter in 2014, which registered 6.0 per cent growth, Reuters data shows. A GDP growth of 7.1 per cent was reported for the 2016-2017 fiscal year ending in March, slower than an 8 per cent expansion a year ago.
The weak GDP data will be a setback for Prime Minister Narendra Modi, who completed three years in office last week.
He had defended his sudden action last November to remove all 500 and 1,000 rupee notes from circulation as a necessary strike against corruption.
The government argues it will boost revenues by dissuading people from using cash, which makes it easier to avoid tax.
While the full impact of the note ban is still not known, analysts had expected a pick-up in the fourth quarter as consumers who had held back in the weeks after the cash ban stepped up spending.
Yesterday's figures, however, have not changed expectations on monetary policy. Analysts still expect the Reserve Bank of India (RBI) to keep interest rates on hold. "We continue to expect the RBI to remain on pause, with any rate hikes ruled out," said YES Bank chief economist Shubhada Rao.
Growth was also dragged down by construction, manufacturing and trade services.
Construction activity contracted 3.7 per cent year-on-year in the March quarter compared with a 3.4 per cent growth in the quarter prior. Manufacturing grew 5.3 per cent in the last quarter from a year ago, slower than an annual rise of 8.2 per cent in the December quarter.
Annual growth in trade, hotels and transport services slowed to 6.5 per cent in the January-March period from 8.3 per cent a quarter ago.
REUTERS, BLOOMBERG, AGENCE FRANCE-PRESSE