The first GDP quarter growth figures contrast sharply against the 7.9% growth in the corresponding quarter in 2016 and 6.1% growth reported in January-March.
Finance Minister Arun Jaitley said on Wednesday that the slowdown in India's GDP growth in the first quarter to 5.7 per cent was a matter of concern.
Manufacturing sector growth dipped to 1.2% in the April-July quarter, down from 5.3% in the previous quarter, according to the data from the Central Statistics Office.
The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago.
He said there was a likely revival from the second quarter onwards as subsequently stocks would be restored to normal levels as the GST regime progressed.
The sectors that registered strong growth were the ones that did well after demonetisation: financial services grew at 6.4% while trade, hotels, transport and communication grew 11%.
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Whatever be the reasons for slow growth, the figures were way off the mark from most of the estimates. Jaitley said that most manufacturers were destocking and thier sales cont to increase, leading to an improvement in the services growth. However, for the last two quarters India lost the top slot due to the twin effect of demonetisation and GST.
In 2012-13 India had slipped into a low sub-5 percent growth due to a series of corruption scandals at home and uncertain external economic environment.
"A major sector that has seen a sharp decline is industry". It admitted that the low GDP wasa challenge for the government in the coming quarters.
The gross fixed capital formation or investment has witnessed a marginal growth of 1.6 percent during the quarter from the 2.1 percent contraction in the previous quarter. Industry body PHD Chamber of Commerce and Industry called the growth data "disappointing" and said there was "a need to focus on reforms to improve the ease of doing business scenario particularly for [micro, small and medium enterprises] in order to encourage the setting up of more industries".
The economy has witnessed fiscal deficit of Rs 5.05 trillion (Rs 5.05 lakh crore) for the April-July period, or 92.4 percent of the budgeted target for the current fiscal year that ends in March 2018.
When Prime Minister Narendra Modi made the shock announcement on November 8 that 500 and 1000 rupee notes (about 7 and 15 dollars) would no longer be legal tender it was estimated that the cash in circulation in the high value notes was worth 15.4 trillion rupees. "The GST Council may decide on convergence of rates at appropriate time", he said.