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GDP figures shocking: Economists

India's economy grew by 5.3% in the March quarter, the slowest since March 2003, according to Thomson Reuters data, and well below analysts' forecast of 6.1% growth.

business Updated: May 31, 2012 11:46 IST

India's economy grew by 5.3% in the March quarter, the slowest since March 2003, according to Thomson Reuters data, and well below analysts' forecast of 6.1% growth.

For the fiscal year ended March, the GDP growth slipped to 6.5% from an earlier estimate of 6.9%, the government data showed on Thursday.

Rahul Bajoria, regional economist, Barclays, Singapore
"Incrementally, the growth slowdown will probably take up more space in policy making and we expect RBI to continue with modest easing. I think after this data, market may come to a view of closer to 50-75 basis point rate cut in rest of the fiscal year, which is also our view, from 25 basis points factored in now.

"RBI is fighting a multi-faceted battle - managing currency, supporting growth, fighting inflation. I think they will wait for fiscal consolidation before cutting rates further.

"This number may be another data to fuel a bit more negativity on India in terms of the rupee movement, but we are not
extremely bearish on India and still expect 7 percent growth in 2012/13."

Shubhada Rao, Chief economist, Yes Bank, Mumbai
"Clearly a huge negative surprise. Lowest recorded print in the new series. Concerns build up as services have slipped to close to 8 percent. Negative manufacturing was anticipated. This number points to a worrisome trajectory going forward as it is yet to take on board the impact of weaker rupee especially from Q1FY13. It may be difficult for RBI to ignore this number."

Dariusz Kowalczyk, Economist, Credit Agricole CIB, Hong Kong
"The data highlight the unusual degree of weakening of the country's economy, likely driven by poor investment and widening trade gap.

"The data also poses a dilemma for policy makers, as they have no fiscal room to stimulate growth, while monetary easing scope is very narrow, at least for now, due to rebounding and high inflation.
"Further weakening of the INR could help a bit, but the key problem is lack of investment, caused by sub-optimal macroeconomic policy making and discouraging policies towards foreign investment.
"We expect the INR to fall further, to fresh record lows, on the data. We also expect a decline in INR OIS, because decelerating growth will, at some point, help curb inflation, enabling some more monetary easing."

Anubhuti Sahay, Economist, Standard Chartered Bank, Mumbai
"Shocking numbers as Q4 FY12 GDP growth was even lower than lows witnessed during the financial crisis. A rate cut is a given now. We expect a 25 bps reduction in repo rate on June 18."

Shakti Satapathy, fixed income strategist, A K Capital, Mumbai
"The Q4 data was quite disappointing and reiterates a reflection of sluggish manufacturing data. However, the service output is showing resilience denying a further head down in the economy. Though the weak data and consistent global worries would keep the sentiment negative in the near term, we expect the June 18 (RBI) policy would primarily be a non-event in terms of rate cut."

Sujan Hajra, Chief economist, Anand Rathi Securities, Mumbai
"Our sense is that growth will be subdued in the first half of the current fiscal year. However, if the government takes some positive steps immediately, we still think growth in 2012/13 will be better than 2011/12.
"The Reserve Bank of India has already adopted pro-growth policy. But inflation is not softening, so it cannot do a significant rate cut. We think they will focus more on making liquidity surplus."

The benchmark BSE index slightly extended losses to 1.2 percent on the day. The 1-year swap rate fell 4 basis points to 7.85 percent from 7.89 percent before the GDP data.
Federal 10-year bond yields fell 10 basis points to 8.42 percent on the day, with bond prices having gained ahead of the data on expectations for a weak number.
The rupee recovered slightly, last at 56.39/40 to the dollar, after hitting a record low at 56.52 before the data.

India's economy, Asia's third-largest, is largely driven by domestic demand. The government has forecast economic growth at around 6.9 percent in the current fiscal year that started on April 1.

Industrial output unexpectedly shrank an annual 3.5 percent in March for the first time in five months hit by weak investment, prompting increased pessimism among investors.

The weak rupee - which has shed nearly 12 percent from its 2012 high - adds to policymakers' headaches by elevating import costs, most notably for crude oil that India buys for 80 percent of its consumption.

High inflation, stoked in part by the falling rupee, leaves the central bank little room to cut interest rates further.

First Published: May 31, 2012 11:44 IST