India’s economy grew at an alarmingly slow 5.3% during the July-September quarter, putting the country on track for its worst financial year since the drought and dot com bust of 2002-03.
Growth during the quarter was far lower than the corresponding period a year earlier and also represented a slowdown from the April-June quarter. To attain even a 6% growth for the financial year to March, the economy will have to grow at an average of 6.6% over the next six months, unlikely in the face of poor investment sentiment and low consumer confidence.
“Overall, the growth rate is below our expectations,” the finance ministry said in a statement.
Ever since it slumped to a 4% growth in 2002-03, India’s Gross Domestic Product (the value of all goods and services produced in the country) has consistently topped the 6% mark, even approaching 10% in 2006-07.
The latest data raised questions about optimistic forecasts put out by global think-tanks which have flagged a turnaround in the economy and sparked a rally on Indian stock markets.
Only on Thursday, investment bank Goldman Sachs had said that the economy would grow by 6.5% in 2013 and gather pace over the next two years spurred by domestic structural reforms and a possible turnaround in external demand.
And on Tuesday, credit ratings agency Moody’s had said the outlook for India’s investment grade credit rating was stable.
But with the latest growth figure, and no prospect of an easing in inflation, months of economic uncertainty may be ahead.
The manufacturing sector grew by 0.8% during the quarter, confirming what most analysts had feared: the central bank’s bitter medicine to raise interest rates has not tamed prices, but crimped growth.
Slower industrial growth could result in fewer jobs and lower salary hikes as companies, facing weak sales, hold back planned investments and cut hiring.
The chairman of the Prime Minister's Economic Advisory Council, C Rangarajan, said that GDP growth in the current fiscal should be between 5.5-6% and a rate cut by the RBI would depend on lowering of inflation.
Some experts maintained that the rebound in the Indian economy wasn’t far away.
“The silver lining is that while India’s growth: inflation performance has clearly deteriorated in recent years, potential GDP growth has probably not, so far at least, slipped much below 7%,” said Richard Illey, chief Asia economist, BNP Paribas.