India’s GDP Growth Slows Sharply in March Quarter

IndusView, Friday May 31 (London): India’s economic growth slowed to its slowest pace in a decade in the March quarter, as the manufacturing and agriculture sectors shrank and a fall in the rupee suggests the economy remains under pressure in the current quarter.

India’s economy grew 5% in the year ended March, the slowest pace in a decade, in line with the projection of the statistics office. Growth in the fourth quarter slowed to 4.8% from 5.1% a year ago. India was recording annual growth of 9% until two years ago, but in recent months it has seen a sharp decline blamed on a slowdown in its manufacturing and agriculture sectors.

“This persistent sluggishness in the economy puts the Reserve Bank of India in a conundrum. It has to cut interest rates to stimulate growth but it can’t cut much as it’ll further devalue the rupee,” said Bundeep Singh Rangar, Chairman of London-based consulting firm IndusView. “What’s alarming is that the drop in manufacturing output suggests a decline in domestic consumption on top of a drop in foreign investment. The decline of the rupee has increased the cost of importing goods and put further inflationary pressure.”

During the year, agriculture grew at 1.9% compared with 3.6% a year ago, manufacturing at 1% against 2.7%, the trade, communication sector at 6.4% compared with 7%, while community services measuring government expenditure picked up to 6.6% from 6% a year ago.

The Indian rupee today sank to 10-month lows before closing with 21-paise loss at 56.17 against the US dollar, making imports costlier that is likely to worsen government's Current Account Deficit (CAD), currently estimated at 5%. The Reserve Bank of India cut its key lending rate thrice this year, all by a quarter of a percentage point, and markets were hoping it to further reduce the rate at its next policy meeting.

Foreign investment inflows into the country topped $50 billion on a net basis during 2012-2013 despite the government's efforts to woo foreign direct investment (FDI) yielding poor results. On a gross basis, investment was down almost 21% to $36.9 billion as foreign investors stayed away due to the poor sentiment in the country as well as problems in Europe and the slow US recovery.

Economists blame India’s relatively sluggish growth over the past year on reluctance by foreign or domestic business to invest, as a result of poor infrastructure for power and transport, uncertainties over taxation, bureaucratic delays and continued restrictions on foreign direct investment.

According to the Federation of Indian Chambers of Commerce and Industry, $52 billion of projects were facing delays because of a lack of official clearances. More than half the value of stalled projects is in power, with others in roads, metals, oil and gas and mining.