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India's quarterly growth seen as worst in three years

August 31, 2012

Indian economy
Indian business leaders and industry have been clamouring for coordinated action by the government and the central bank to stimulate growth. — Photo by AFP/File

NEW DELHI: India is expected Friday to announce its worst quarterly economic growth figures in three years, with economists saying there is scant hope for a swift turnaround in Asia's third-biggest economy.

India, which once aspired to double-digit expansion, has been hit hard by declining investor confidence, subdued demand and prolonged political logjam that has stalled key reforms.

“The current slowdown is broad-based, and we see little on the horizon to lift growth from its current path,” said Glenn Levine, senior economist at Moody's Analytics.

Levine expects growth of 5.2 per cent for the first financial quarter of 2012-13, a shade lower than the consensus market forecast of 5.3 per cent.

The figures for the three months to June, set to be announced at 0530 GMT, were expected to deepen the gloom surrounding the Asian giant.

The projected expansion would be the weakest since the last fiscal quarter of 2008-09 when the economy logged 3.5 per cent growth.

While five per cent-plus expansion would be hailed as strong in Western nations, Indian policymakers say the country needs double-digit growth to create jobs for hundreds of millions of young workers.

The government — damaged by a series of corruption scandals — is struggling to introduce economic reforms in parliament that are seen as key to spurring the economy.

But the legislature has been deadlocked by opposition demands for Prime Minister Manmohan Singh to quit over an alleged government giveaway of billions of dollars in coal mining rights to private firms.

India's once booming industrial sector is in crisis, with output contracting by a shock 1.8 per cent in June. Overseas investor confidence has also tumbled, as shown by figures for foreign direct investment for the quarter to June, which slid year-on-year by 67 per cent to $4.43 billion.

It remains “unclear what the government can do in the next three to six months” to improve the situation, said Siddhartha Sanyal, chief India economist at Barclays Capital.

Global rating agencies have lowered their outlook on India's investment-grade rating amid rising worries about the government's deteriorating finances.

The Reserve Bank of India has also warned that prospects are unlikely to improve in the near-term, due to high inflation, the lack of reforms and the impact of weak monsoon rains on farm output.

While other banks globally have been easing rates to revive their troubled economies, India's policymakers have kept borrowing costs on hold since April — when it cut them for the first time in three years by 50 basis points.

Business leaders and industry have been clamouring for coordinated action by the government and the central bank to stimulate growth.

But the government has no fiscal room to spur the economy and the bank says a cut in subsidies to close India's gaping deficit and revival of reforms are needed to remove chronic bottlenecks and pave the way for lower rates.

India's economy is expected to grow by 6.7 per cent in this fiscal year, according to a forecast by an advisory panel to the prime minister, but many economists say that is overly optimistic.

“The mood is downbeat and people have no hope left from the government,” said Jigar Shah, head of research at Kim Eng Securities.

“The only positive (aspect) is that things possibly cannot get worse.”