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Economy slows down, credit becomes dearer

The bad news is that India’s economy is slowing down, after a three-year sprint, reports Gaurav Choudhury.
By Gaurav Choudhury | Hindustan Times, New Delhi
UPDATED ON FEB 08, 2008 02:03 AM IST

The bad news is that India’s economy is slowing down, after a three-year sprint. The good news is: the economy is continuing to expand and there is little evidence that companies are going back on investments they have planned. For individual consumers though, the high cost of credit has cramped spending.

Government data released on Wednesday showed that the economy may grow at the rate of 8.7 per cent through this fiscal year ending in March. The forecast is below expectations of most analysts and falls nearly one percentage point short of the 9.6 per cent growth seen in the past year.

The numbers underscore the impact of the surge in lending rates over the past one-and-a-half-years, especially on retail (individual) consumers. The rising cost of credit has started to bite and sales of a wide range of products — from automobiles to television sets (that are mostly bought on loans) — have been hit.

Coming weeks ahead of the budget, the latest data from the Central Statistical Organisation could prompt Finance Minister P. Chidambaram to explore fiscal measures that could help reverse the slowdown. “The CSO figures are lower than what I had anticipated. We are disappointed, but not despondent,” Chidambaram said. He didn’t comment if the government would bring any measures to correct the course, but there have been demands for tax breaks and other fiscal sops to spur consumption.

Banks and finance companies have also seen less consumers knocking for loans, while real estate companies have been forced to go slow on their plans for new buildings and apartments.

Home buyers have been hit hardest. The steep rise in home loan rates has seen a drop in the growth of retail real estate loans, with the growth in housing loans dropping to half the 33 per cent-plus growth rate recorded last year. Banking industry sources admitted that the real drop is sharper, with the number of actual borrowers dropping sharply, even though the average loan size has increased, thanks to rising realty prices.

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