Reflecting the current economic woes, India’s GDP growth rate slipped to 6.5 percent in 2011-12, the worst in nine years, on account of decline in almost all segments including agriculture and manufacturing.
For the quarter ended March, 2012, the economy expanded at 5.3 percent, again the slowest since 2002-03, prompting analysts to describe the economy as a “gasping elephant”.
The Central Statistical Organisation (CSO) has revised the overall growth rate for 2011-12 to 6.5 percent from 6.9 percent estimated earlier.
The figures come against the backdrop of adverse global environment and domestic woes arising out of high interest rates and policy inaction, experts said.
The “disappointing” growth, as Finance Minister Pranab Mukherjee described it, comes after the Gross Domestic Product (GDP) registered a growth of 8.4 percent for two consecutive fiscal years — 2009-10 and 2010-11.
The data has also forced Chairman of Prime Minister’s Economic Advisory Council (PMEAC) C Rangarajan to lower the outlook for the current fiscal to 6.5-7 percent against the government projections of 7.5 percent.
Industry was quick to demand a revival package from the government and easing of interest rates by the Reserve Bank of India which is scheduled to review the credit policy on June 18.
Within few hours of Mukherjee promising “all necessary steps” to check the economic slide, his ministry came out with a slew of austerity measures, including restrictions on foreign travel by the government functionaries and ban on creation of new posts.
The HSBC headlined its India report as “A gasping elephant”.
Throwing clear signs of slowdown continuing in the current fiscal, the growth rate of eight core infrastructure sectors like coal, cement, electricity, oil, and steel, halved to 2.2 percent in April against 4.2 percent a year ago.
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
“Clearly a huge negative surprise. Lowest recorded print in the new series. Concerns build up as services have slipped to close to 8 percent. Negative manufacturing was anticipated. This number points to a worrisome trajectory going forward as it is yet to take on board the impact of weaker rupee especially from Q1FY13. It may be difficult for RBI to ignore this number.”
DARIUSZ KOWALCZYK, ECONOMIST, CREDIT AGRICOLE CIB, HONG KONG
“The data highlight the unusual degree of weakening of the country’s economy, likely driven by poor investment and widening trade gap.
“The data also poses a dilemma for policy makers, as they have no fiscal room to stimulate growth, while monetary easing scope is very narrow, at least for now, due to rebounding and high inflation.
“Further weakening of the INR could help a bit, but the key problem is lack of investment, caused by sub-optimal macroeconomic policy making and discouraging policies towards foreign investment.
“We expect the INR to fall further, to fresh record lows, on the data. We also expect a decline in INR OIS, because decelerating growth will, at some point, help curb inflation, enabling some more monetary easing.”
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI
“Shocking numbers as Q4 FY12 GDP growth was even lower than lows witnessed during the financial crisis. A rate cut is a given now. We expect a 25 bps reduction in repo rate on June 18.”
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
“Our sense is that growth will be subdued in the first half of the current fiscal year. However, if the government takes some positive steps immediately, we still think growth in 2012/13 will be better than 2011/12.
“The Reserve Bank of India has already adopted pro-growth policy. But inflation is not softening, so it cannot do a significant rate cut. We think they will focus more on making liquidity surplus.”
India’s economy, Asia’s third-largest, is largely driven by domestic demand. The government has forecast economic growth at around 6.9 percent in the current fiscal year that started on April 1.
- Industrial output unexpectedly shrank an annual 3.5 percent in March for the first time in five months hit by weak investment, prompting increased pessimism among investors.
- The weak rupee – which has shed nearly 12 percent from its 2012 high – adds to policymakers’ headaches by elevating import costs, most notably for crude oil that India buys for 80 percent of its consumption.
- High inflation, stoked in part by the falling rupee, leaves the central bank little room to cut interest rates further.
- The Reserve Bank of India last month delivered a larger-than-expected 50 basis point cut in benchmark rates but warned that it sees limited scope for more reductions.
- Factory growth picked up in April, helped by bulging order books, the HSBC-Market purchasing managers’ index shows, but the sector is not out of the woods yet.