India‘s economy grew 5.3% during January-March (Q4), the eighth successive quarterly decline, and the slowest pace in nine years. For the full year, the economy grew 6.5%.
India’s economy grew 5.3% during January-March (Q4), the eighth successive quarterly decline, and the slowest pace in nine years. For the full year, the economy grew 6.5%.
The only silver lining to the otherwise gloomy outlook is that most economists now expect inflation to remain capped around current levels, with growth having fallen so sharply. All eyes are now on the Reserve Bank of India; expectations of the central bank cutting interest rates at its June 17 meeting have gone up with the latest dismal GDP number.
For the fourth quarter, services grew 7.9% compared to 10.6% last year, farm sector growth fell to 1.7% from 7.5%, manufacturing sector logged negative growth of 0.3% against 7.6%, and construction sector growth fell to 4.8% from 8%.
What is worrying economists is the slowdown in the services segment, which had been cushioning the decline in GDP growth.
C Rangarajan, chairman, Prime Minister’s Economic Advisory Council said that RBI would find it difficult to reduce interest rates if inflation continued to remain high. But many players feel it is now time for the central bank to shift attention to growth from inflation, in order to prevent the situation from worsening.
The 30-share Sensex slipped 225 points to 16086 after the GDP figure was announced, but recouped losses soon after and is around 16123.
The yield on 10-year government bond has fallen to 8.43%. These indicate that both the stock and bond markets are betting on the RBI reducing interest rates at its next meeting on June 17.
Foreign brokerages like Morgan Stanley, CLSA, Goldman Sach and Merrill Lynch had lowered their GDP forecast for FY13 to 6.3-6.6% from around 7% earlier. And while Rangarajan is hopeful that India’s GDP can still grow between 6.5-7% this year, most analysts see that number being closer to 6%.