India’s economic growth crashed to a nearly four-year-low of 4.4% in April-June this year from 4.8% in the previous quarter, proving fears of a widespread slowdown with factories producing less, companies offering fewer jobs and prices remaining high.
Prime Minister Manmohan Singh speaks in the Rajya Sabha during the ongoing Monsoon session in New Delhi. (PTI Photo/TV Grab)
The estimates of India’s gross domestic product (GDP)— the broadest measure of value of all goods and services produced in the country—put out by the Central Statistics Office (CSO) on Friday demonstrated a deeply hurt economy hit by a toxic mix of a free-falling rupee, dipping investment, high borrowing costs and rising prices.
The manufacturing sector contracted 1.2% in the January-March Period, while agriculture sector expanded 2.7%. Among services, financial services grew 9.3%, while trade and transportation expanded at a moderate pace of 6.1%, according to the data released by the Central Statistical Organisation (CSO) -- the government's main data arm.
The crippling deceleration—from farms to factories — will also mount pressure to unveil growth-reviving measures in the coming months to halt the slide in the economy in an election year.
Prime Minister Manmohan Singh, who was speaking in Parliament before the GDP data were announced, said the rupee's worst slide against the dollar in nearly two decades "certainly a shock".
But there is "no reason for anybody to believe we are going down the hill and 1991 is on the horizon," Singh told lawmakers. In 1991, a foreign-exchange strapped government pawned its gold reserves in exchange for loans from the International Monetary Fund.
Singh called India's record current account deficit - the widest measure of trade that has undermined the currency - "unsustainably large".
India’s economy grew by 5% in 2012-13, the worst in a decade.
From a foreign investors’ darling to an economy characterised by policy flip-flops, the Indian economy’s turnabout has been as rapid as the heady 9%-plus growth it had once clocked during 2004-2008.
The prospect of a credit rating downgrade to “junk” casts a very long shadow over the market with agencies sparing no punches about India’s precarious public finances.
The government and the Reserve Bank of India (RBI), has announced a string of steps that including making loans costlier for banks, controls on foreign exchange transactions for individuals and firms and easing of foreign investment caps on several sectors such as telecommunications and defence.
The rupee, despite a pull-back in the last two days, has shed more than 15% in the last one month, partly mirroring the government and the central bank’s failure to stop the currency’s free-fall.
News that investments worth more than Rs. 1.83 lakh crore had been approved did nothing to boost sentiment.
Capital goods output, a proxy for investment activity, have also been contracting in recent months — a clear sign that firms were putting off capacity expansion plans. This has resulted in fewer job opportunities and employee retrenchments as firms battle to keep costs down.
“There are no visible signs of investment pick up as investor sentiments continue to be very low.
A weak rupee, tight liquidity, high cost of funds, procedural delays are all coming in the way of an investment revival,” industry body Confederation of Indian Industry said in a statement.