Indian economy slows after decade of growth
India announces growth figures for its full financial year on Friday which are expected to show the once-booming South Asian economy expanded at its slowest pace in a decade in 2012/13.
Low business confidence, slumping investment, high inflation and weak export demand from Western countries are blamed for the bleak performance which comes ahead of national elections scheduled for next year.
The economy in the 12 months to the end of March is likely to have grown by 5.0 percent, according to a poll of six economists by AFP, dragged down by a fourth-quarter slump when GDP likely expanded 4.5-5.0 percent.
Despite government efforts to talk up the economy after a burst of pro-market reforms at the end of last year, most independent analysts see continuing slack demand and few quick fixes.
“Business activity is still sluggish,” Rupa Rege Nitsure, chief economist with state-run Bank of Baroda told AFP, ahead of the release of the data at about 0530 GMT.
Global ratings agency Standard and Poor’s warned earlier this month that India faces at least “a one-in-three” chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms.
India’s BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa and cutting it to “junk status” would raise the country’s hefty borrowing costs.
The Organisation for Economic Cooperation and Development (OECD) this week lowered its projection of India’s GDP to 5.3 percent in 2013, from 5.9 percent earlier.
“The government needs to go all-out to turn around investment sentiment,” said Yes Bank chief economist Shubhada Rao, who forecast India’s GDP growth for the final March-end quarter at 4.9 percent.
The left-leaning government led by Prime Minister Manmohan Singh and the Congress party has been dogged by corruption scandals during its second term in office and has struggled to push through promised pro-business legislation.
It is scheduled to face the electorate next year having been unable to sustain the scorching growth rates of the last decade which were frequently near 10 percent.
In a brief reforming period last year, the government opened up the retail and aviation sectors to wider foreign investment and partly freed fuel prices to reduce its burgeoning subsidy bill.
But faced with a hostile parliament and a shaky ruling coalition, it has since failed to pass mooted legislation to open up the insurance and pension sectors or a long-delayed law to simplify land acquisition.
Government pressure has mounted on the central bank to ease borrowing costs after it raised interest rates aggressively in 2010 and 2011 to combat double-digit inflation last year.
It has obliged by cutting interest rates three times in 2013, but Reserve Bank of India governor Duvvuri Subbarao has said the bank has “limited space” to ease monetary policy further due to the risk of inflation flaring up again.
India’s wholesale inflation, its most widely watched measure, cooled last month to a surprise 41-month low of 4.89 percent. But the consumer price index is at 9.39 percent, led mainly by high food and beverage prices.