Business: Feb 29, 2012

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A sharp fall in India's economic growth to 6.1 percent in the quarter to the end of December, the slowest in three years, he unleashed fears of a prolonged decline if emergency steps are taken this month.

A slowdown in manufacturing and mining has accelerated the shift of the Asian third largest economy in the underlying growth after a failed push to hit double digits. A collapse in investment also increased expectations that the Reserve Bank of India may cut benchmark lending rates at its next policy review meeting on 15 March.

Rajiv Kumar, the director general of the Federation of Indian Chambers of Commerce and Industry, said that Wednesday's "sobering" gross domestic product data set an official target of 6.9 per cent growth for the full fiscal year, out of reach and bounce back next year in doubt.

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Mr Kumar said India's domestic driven economy is facing the possibility of poor performance in the current fiscal year than the year of the global financial crisis and the collapse of Lehman Brothers, U.S. banking group.

Many economists consider India's woes as a self-inflicted. They emphasize the overwhelming drop in investment in response to high interest rates, the paralyzed Congress-led government, and over-reliance on welfare-driven consumption.

Corporate investment has fallen to 14 per cent of the GDP of the 18 percent it registered in the five years to 2008. Exports have slipped from 23 percent last year to 14 percent this year. Government market borrowing, dropped to 3 per cent four years ago, is now running at 6 per cent of the GDP.

Data released Wednesday showed economic growth slowed to 6.1 percent annualized from 6.9 percent in the previous part, weighed down by two years of gradual monetary tightening, withdrawal of foreign capital and weakness local currency.

By comparison, China's economy grew at 8.9 per cent in the quarter to the end of December.

Sonal Varma, an economist at the Japanese banking group Nomura in Mumbai, said the slowdown in India were "clearly evident".

"What is surprising is the slowdown in investment and manufacturing are worse than during the 2008 global financial crisis. It is the worst for these sectors for a decade," she said.

Chandrajit Banerjee, the director general of the Confederation of Indian Industry, also expressed concern that gross capital formation time, reflecting the "bleak investment outlook."

He warned of the "near stagnation" of the industrial sector and the contraction of the mining sector over two equal parts.

"All policy levers should be used to drive a revival in the economy," he said, asking for interest cuts, faster project clearances and great efforts to stimulate manufacturing.

Economists and fund managers took heart of efforts by Manmohan Singh, the prime minister, to power the economy during the past two months, and undo the damage of what some call "comma policymaking" and macroeconomic uncertainty.

They placed considerable store in the central bank monetary policy review meeting this month and the national budget in March 16 to take action to arrest the slide in growth.

"A condition for growth to accelerate ... and for India to return to the 9 per cent growth trajectory is a jump-start in the private investment cycle," said Jahangir Aziz, chief economist of JPMorgan Chase in Mumbai.

Some consider the economy to be back outside. But others say more needs to be done quickly to revive investor sentiment and supported the bloom in India's financial markets with fiscal consolidation, overcoming supply constraints and delivering policy reform.

"Unless action takes place by the government to stimulate growth, the outlook looks very ill," said Samiran Chakraborty, economist at Standard Chartered Bank in Mumbai.

Business

Wednesday, February 29, 2012

Indian economic growth slips to 6.1%

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