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," according to SBI's research report Ecowrap.
The report, which analysed data of 1,695 listed firms, noted that there is significant destocking in both in 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, have been 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 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 goods & engineering goods have performed dismally and this is a cause of 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 next fiscal that growth can witness an uptick provided asset resolution takes place by then," the report noted.
