India's fourth quarter GDP grows at 5.3%, below expected 6.1%
India's economy grew at a dismal rate of 5.3 per cent in the quarter ended March 2012, against expectations of 6.1 per cent projected by a poll of 31 economists.
This means that growth has now slowed for eight successive quarters through the three months ended March 2012. The rate of growth in gross domestic product (GDP) was 6.1 per cent in the December quarter.
GDP growth for the full year was 6.5 per cent, the slowest pace in three years, and well below the 8.4 per cent last year. The Reserve Bank of India had projected GDP growth of 6.9 per cent.
Economic growth in the country has been shaken by a global economic slowdown, a currency at record lows and a government that has been unable to take strong action to curb the fiscal deficit as well as any meaningful reforms to further liberalise the economy.
Indian industrial production, which accounts for about 15 per cent of GDP, grew at a muted annual pace during the first three months of the year, averaging just 0.6 per cent.
Factory sector growth picked up in April, helped by bulging order books, the HSBC-Markit purchasing managers' index shows, but the output index fell for a third straight month, suggesting the sector is not out of the woods yet.
India's car sales rose in April just 3.4 per cent from a year earlier, the weakest pace since a surprise 24 per cent drop in October and sharply below the 13.2 per cent annual growth in April 2011.
A sluggish global economy has also cut demand for India's goods overseas, despite the falling rupee, which means exports may also not grow enough to compensate for the domestic weakness.
The weak rupee—which has shed nearly 12 per cent from its 2012 high on pressure from imports ane the euro’s weakness—adds to policymakers' headaches by elevating import costs, most notably for crude oil, 80 per cent of which is imported. It also adds to the burden and risk exposure of Indian firms with foreign-currency debts.
A number of Indian companies resorted to raising money overseas when the rupee was stronger, and liquidity conditions at home were tight as the RBI kept interest rates high to tame inflation. However, inflation has continued to grow, while growth has slowed, prompting suggesting that India might have entered a period of ‘stagflation’.
High inflation, stoked in part by the falling rupee, leaves the central bank little room to cut interest rates further. The RBI in April delivered a larger-than-expected 50 basis point cut in benchmark rates but warned that it sees limited scope for more reductions.
However, India's growth rate will still remain higher than many Western economies, which are either contracting or showing only anemic expansion.
The euro zone economy came to a standstill in the first quarter of the year, while the United States grew at an unimpressive 2.2 per cent annualized rate.
Other major Asian economies are also slowing down. China's economy grew 8.1 per cent in the first quarter from a year earlier, its weakest pace in almost three years.