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India's 2Q economic growth slows to 7.9 percent

India's 2Q economic growth slows to 7.9 percent

India's economic growth slowed to 7.9 percent in the April-June quarter, down from 9.2 percent in the same period last year, amid a slump in manufacturing, the government said Friday.
Growth, which has averaged 8.8 percent over the past five years, is at its slowest pace since 2004, government data showed.
The decline in the growth rate was widely anticipated and comes after months of monetary tightening, as authorities have tried to reign in surging inflation.
"These are numbers that shouldn't surprise," said Saumitra Chaudhury, a member of the Prime Minister's Economic Advisory Council and chief economist at the credit rating agency ICRA Ltd., a Moody's affiliate.
"When you have monetary tightening, you do get lower growth. That was expected," he said. "But it's not terribly low; 7.9 percent is still high by historical standards."
Friday's number, however, is far shy of the 10 percent growth rate Prime Minister Manmohan Singh said India needs to achieve.
"Our economy must grow at the rate of at least ten per cent every year to get rid of poverty and generate employment for all," Singh said, speaking on India's Independence Day, Aug. 15.
In 2005, 456 million Indians _ 42 percent of the population _ were living on less than $1.25 a day, according to the World Bank.
Subir Gokarn, Standard & Poor's chief economist for the Asia-Pacific, said such bounding growth is not likely to return to India until the government embraces tough reforms to encourage private investment in infrastructure and to liberalize the labor market.
"Until we can achieve those reforms, 10 percent remains an unattainable target," he said.
Standard & Poor's expects India's gross domestic product growth for the year to be 7.8 percent. "We see this as a bottoming out," Gokarn said, of Friday's numbers.
Manufacturing growth was hit hardest in the April-June quarter, slumping to 5.6 percent from 10.9 percent for the same period last year.
Gokarn said volatility in the manufacturing sector began last September and has been driven by declines in interest-rate sensitive sectors like transport equipment, construction, and consumer durables.
Inflation in India has been raging at 13-year highs, prompting the central bank to hike the nation's key interest rate by 125 basis points and the cash reserve ratio _ the amount of money banks must keep on hand _ by 150 basis points since April.
On Thursday, the government reported that the wholesale price index, the nation's most-watched inflation indicator, rose 12.4 percent for the week ending Aug. 16, down from 12.63 percent for the previous week, its first decline in five months.
"We're still in an inflationary squeeze," Gokarn said, adding that the recent dip was largely due to the softening of crude oil prices.
Tightening credit has cut into consumer spending and dampened enthusiasm for business investment, economists say.
Meanwhile, below-average rainfall could imperil agricultural growth, which declined to 3.0 percent in the most recent quarter from 4.4 percent a year ago. About two-thirds of Indians depend on agriculture for their livelihoods.
Rainfall for the week ending Aug. 27th was 39 percent below normal, according to India's Meteorological Department. "The monsoons have been disappointing this year and raise the probability of agriculture growth coming in at sub 3 percent," Rohini Malkani, an economist at Citigroup India, said in a statement Friday. Flat agriculture growth could further depress economic growth to 7.1 percent, she added.


Updated : 2021-10-21 21:56 GMT+08:00