Labour-Intensive Sectors Growing Slower Than India’s GDP
CRISIL cuts India’s GDP forecast 2018 to 7 percent from 7.4 percent.
Labour-intensive sectors in India, which have a high potential for job creation, have seen a sharper dip than the country's economic growth slowdown and the trend is “worrisome”, according to CRISIL Ratings.
“This suggests that slower economic growth could also have shaved off employment growth in the country,” CRISIL said in a research note on Monday. Most sectors that grew faster are less labour intensive and have a low share in the overall output, it said.
Construction and manufacturing, two of the most labour-intensive sectors of the economy, have been undershooting the overall growth in gross domestic product in at least past two quarters, the research note showed. They have seen a sharper dip than GDP growth in the quarter ended June, according to CRISIL.
India's GDP growth slowed to its lowest in three years to 5.7 percent from 6.1 percent in the previous three months due to a slowdown in manufacturing ahead of the implementation of the Goods and Services Tax in July. Gross value added growth remained unchanged at 5.6 percent. Finance Minister Arun Jaitley acknowledged the slowdown as a “matter of concern”.
The “unusually low growth” in the first quarter “confirms the vulnerabilities of Indian economic growth”, CRISIL said while also trimming its GDP forecast for the current fiscal.
The rating agency now predicts India's gross domestic product in the year through March 2018 to be at 7 percent from 7.4 percent earlier, a media statement said. The forecast implies a 7.4 percent growth in GDP for the remaining three quarters, it said.
But the sharp decline in growth is transitory and the Indian economy “will grind up slowly over the next few quarters as the impact of demonetisation and destocking fades”, said the rating agency. Manufacturing activity has already seen an uptick in August after falling to multi-year low in June, it said.
The demonetisation-driven cash crunch hurt economic growth, especially small enterprises, while the imminent rollout of the Goods and Services Tax spurred destocking and a slowing of production brought down manufacturing growth.CRISIL Research
CRISIL said that growth will be consumption-driven due to a normal monsoon, softer interest rates and inflation, pay hikes for government employees and a pent-up demand which was postponed due to demonetisation.
Growth may slow down if the impact of GST implementation is more disruptive than what CRISIL anticipates, it said.