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Home » News » Economy

May 30, 2013, 08.05 PM | Source: Reuters

No fast rebound seen for India's moribund economy

No fast rebound is seen for India's moribund economy as analysts predict the gross domestic product (GDP) to be around 5 percent for the first quarter in the current fiscal year.

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No fast rebound seen for Indias moribund economy

No fast rebound is seen for India's moribund economy as analysts predict the gross domestic product (GDP) to be around 5 percent for the first quarter in the current fiscal year.

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No fast rebound seen for Indias moribund economy
India's economic growth likely remained stuck around a near four-year low in the March quarter, compounding the government's woes as it heads into a busy election period weighed down by graft scandals and a record of poor economic management.

A Reuters poll of 37 economists showed gross domestic product (GDP) expanded 4.8 percent year-on-year, only slightly better than the 4.5 percent growth in the previous three months, which was the lowest in fifteen quarters. India's statistics office will release the data at 0530 GMT on Friday.

Also read: Q1 GDP likely at sub-5%, no rate cut until July: CLSA

If the forecast materialises, it means India's full-year economic growth for 2012/13 (April/March) was about 5 percent, its worst in a decade, and a far cry from the 9 percent annual expansion recorded until two years back.

Years of fiscal profligacy, a long struggle with high inflation, high interest rates, persistent political gridlock and fragile global economy have put India back in a rut.

"It is imperative that both the government and the RBI get their acts together," said Jyotinder Kaur, an economist with HDFC Bank, who believes the Reserve Bank of India (RBI) should take action to get money flowing into the real economy.

"The room for policy response is limited but it is not completely absent."

Prime Minister Manmohan Singh leads a minority, coalition government that has been weakened by a series of high profile graft cases, and there is little sign of the fast economic rebound that could shore up its prospects in state elections this year and a national vote due by May 2014.

Opposition parties have used the scandals linked to allocation of resources including coal and telecoms to paralyze parliament, delaying legislation aimed at attracting funds to lift capital investment growth from an eight-year low.

The deep economic slowdown has tarnished the image of octogenarian Singh, a venerated economist whose far-reaching reforms two decades ago laid the ground for boom years that followed.

His poor record of delivering on promises, coupled with myriad regulatory hurdles - including high-profile tax battles with foreign companies - has driven investors away. Foreign direct investment into the country has fallen, while outbound corporate investment is on the rise.


To arrest the growth slide, Singh and Finance Minister P. Chidambaram launched a slew of steps from last September to encourage investment and control a high fiscal deficit. They expect those measures to help push up the economic growth to at least 6 percent this financial year.

The government is due to publish full year fiscal deficit data later on Friday, as well as infrastructure output data for April, a more up-to-date reading of the economy.

There are some signs that global firms are betting on India's prospects as one of the world's largest emerging consumer markets, with several large investments announced in recent months.

A recovery in annual industrial production and exports along with slowing inflation is also holding out some hope for Asia's third largest economy. But economists caution against reading too much into it.

"Based on the current trends, it is far too premature to say that we are in the middle of an economic recovery," said Kaur, citing anemic corporate investments and consumer demand.


Weak public finances has constrained the option of pump-priming the economy out of the slowdown. On the contrary, Singh has been forced to slam the brakes on public spending to retain India's investment-grade sovereign rating.

The Reserve Bank of India's (RBI) 75 basis points interest rate cuts since January should have given some help, but a persistent liquidity shortage and locked-in high cost deposits mean Indian banks are reluctant to pass on the lower rates.

H.R. Khan, one of the deputy governors at the RBI, this week said the central bank is likely to take steps to address the tight liquidity situation. Kaur expects the bank to make more bond purchases from the market and auction the government's idle cash balance parked with it.

Enthused by slowing inflation, financial markets are hopeful of more monetary easing even though the central bank has warned of limited room for further easing.

Finance ministry officials say lower interest rates along with benign inflation will help bolster consumer demand that is growing at its slowest pace in at least 8 years.

Normal rains this summer, they argue, should also boost economic growth by lifting farm output and income.

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