All round concern as slowdown drags India’s growth to 5.3 percent (Roundup)February 27th, 2009 - 4:23 pm ICT by IANS
New Delhi, Feb 27 (IANS) The fears of a sharp slowdown in India were confirmed Friday, with official data showing economic growth at just 5.3 percent for the third quarter of this fiscal - the slowest since 2003 - as against 8.9 percent in the like period of the previous year.
The growth in gross domestic product (GDP) has dipped from 7.6 percent for the second quarter and 7.9 percent for the first quarter, the latest data released by the Central Statistical Organisation (CSO) showed.
Overall, the growth for the first nine months of the current fiscal has dropped to 6.9 percent, as opposed to the impressive 9 percent economic expansion in the corresponding period last fiscal, the data showed.
The latest growth figures now put a question mark over India being able to log the 7 percent or higher growth in the current fiscal year, as predicted by the government and projected by the central bank.
The lower growth numbers also come as a major shock for the Congress-led United Progressive Alliance (UPA) government, which will face national elections soon, but industry lobbies feel the economy should get a lift soon.
“The stimulus packages announced by the government will definitely come to rescue of industry in the course of time. One does not need to grow extremely pessimist about India’s growth story,” said the Associated Chambers of Commerce and Industry (Assocham).
“We expect the quarter-four growth to be much better on higher spending and a good rabi crop,” said Ashok Chawla, the secretary for economic affairs in the finance ministry. “We expect the 2008-09 growth to be close to 7 percent.”
But global rating agency Moody’s did not share the government’s perception and said the near-7 percent target would be certainly missed with a growth of no more than 5 percent predicted for the first half of calendar year 2009.
“A recovery seems far from sight, as the fiscal stimulus does not appear strong enough to foster a rebound the way China’s fiscal boost is expected to do,” said Sherman Chan, an economist with Moody’s Economy.com.
What has come as a major cause for worry is the 2.2 percent decline in farm output and 0.2 percent drop in manufacturing as shown by the fresh figures, even as construction logged a much lower growth of 6.7 percent in the quarter under review.
Economic activities that registered reasonable growth in the third quarter were mining (5.3 percent), hospitality, transport and communications (6.8 percent), banking, insurance and realty (9.5 percent) and government services (17.3 percent).
“One of the reasons for the decline is the slide in agriculture. A negative 2.2 percent does have an impact,” said D.K. Joshi, the principal economist with the rating agency Credit Rating Information Services of India Ltd (Crisil).
“Yet, one must not forget that the decline is on a very high base of nearly 7 percent last year,” Joshi told IANS. “All sectors have shown weakness, but manufacturing has a greater impact because of its overall weight.”
Joshi predicted that the Indian economy would grow at between 6.5 percent and 7 percent this fiscal. “Closer to 6.5 percent, I would say.”
According to the Moody’s economist, trade and tourism-related sectors were also showing signs of fatigue. “Further moderation is expected this year as exports are set to tumble and visitor arrivals are bound to be subdued when major economies around the world remain in recession,” said Chan.
“When global economic conditions begin to improve, India will see a bottom. Although the emerging giant is driven mainly by domestic consumption, it is still hurt by external weakness through a slump in exports and foreign-funded investments,” Chan said.
Looking ahead, another leading industry lobby, the Federation of Indian Chambers of Commerce and Industry (FICCI), urged the central bank to cut its cash reserve ratio, the repo rate and the reverse repo rate, and induce commercial banks to lower their interest rates.
“This should not be too difficult, as inflation has already come down to below 4 percent. Further, the government must send strong signals to the banks to direct credit for productive activities and to support investors and consumers alike,” said the chamber’s new president Harsh Pati Singhania.