Slowest growth for India in 4 years
August 30, 2008 · Print This Article
India’s economy in big trouble due to inflation and slowing growth caused by higher oil and food prices.An article written by Cherian Thomas publidhed in Shanghai Daily takes a look at India’s economic outlook :
INDIA’S economy grew at the slowest pace last quarter since 2004 as the fastest inflation in a decade and increased borrowing costs damped consumer spending.
Asia’s third-largest economy expanded 7.9 percent in the three months to June 30 from a year earlier, following an 8.8 percent gain in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi yesterday. Analysts expected gross domestic product to increase 8 percent.
Inflation has almost tripled this year to 12.4 percent amid higher fuel and food prices, forcing the central bank to raise interest rates three times since June.
While growth is almost double, the average pace since India’s independence in 1947, it is slowing along with the other so-called BRIC economies of Russia, Brazil and China.
“We don’t expect India’s slowdown to be too dramatic,” said Philip Wyatt, a senior economist at UBS AG in Hong Kong. “There will be a gradual slowdown in GDP growth throughout this year – the industrial side of GDP is already slowing.”
India’s benchmark sensitive index, which has declined by a third this year, rose 3.7 percent to 14564.53 yesterday in the Bombay Stock Exchange. The rupee gained 0.4 percent to 43.935 against the US dollar. Finance Minister Palaniappan Chidambaram said yesterday that growth for the year to March 31, 2009, will be close to 8 percent.
India risks being overtaken by Russia as the world’s fastest expanding major economy after China this year. Russia’s economy may grow 7.1 percent in 2008, surpassing India’s 7-percent expansion this year, according to World Bank estimates.
Industry concerns
“High inflation and interest rates are issues that are bothering the industry as they have an impact on consumer demand and hurt corporate profitability,” said KV Kamath, chief executive officer at ICICI Bank Ltd, India’s second-largest lender. “Until we see inflation easing, it would be unrealistic to expect an easing of monetary policy.”
Services including banking, transportation and hotels grew 10 percent in the second quarter from a year earlier, slowing from an 11.2-percent gain in the previous three months, according to yesterday’s report. Agriculture increased 3 percent from an earlier advance of 2.9 percent.
Inflation can win or lose elections in India, where about 456 million people live below the World Bank’s poverty line of US$1.25 a day. Prime Minister Manmohan Singh’s Congress Party lost ground in nine of 11 state elections since January 2007 because of rising prices. General elections are scheduled to be held before May.
Singh said this month he doesn’t want growth to suffer in the battle against inflation.
In February, Singh wrote off US$17 billion of farm loans and this month increased salaries of about 5 million government employees by 21 percent to spur consumer demand.
The central bank’s forecast of 8-percent economic growth in the year to March 31 will be weakest expansion since 2003 and comes after Singh presided over record average annual growth of 8.9 percent since 2004.
The June-September monsoon, which accounts for four-fifths of the nation’s annual rainfall, was 39 percent below average in the week ended August 27, according to the weather office. A normal monsoon will help the country’s 234 million farmers harvest a bigger crop and boost rural incomes.
“Agriculture will hold the key for both industry and overall growth,” said Tushar Poddar, a Mumbai-based economist at Goldman Sachs.
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