Growth in India hits 2-year low
Source: Agencies |
December 1, 2011, Thursday
|
Print Edition
Print Edition
INDIA'S economic growth slowed to 6.9 percent year on year in the third quarter, its lowest in over two years, the government said yesterday.
High inflation has weakened demand and prompted the central bank to raise interest rates 13 times over the last 18 months, crimping growth as a dour global economy squeezes credit and exports.
Policy inertia and corruption scandals have also slowed the flow of investment and helped push the rupee to record lows.
The quarterly results were in line with expectations and put pressure on the central bank to arrest the stream of rate rises.
Abheek Barua, HDFC Bank's chief economist, said: "There is clearly a momentum to deceleration setting in, largely driven by a declining investment cycle. The manifestations of that will be far more acute next year."
Gross fixed capital formation - a measure of investment - slid 1.8 percent from the previous quarter, to 4.0 trillion rupees (US$77.3 billion).
Barua predicted growth will be about 7.3 percent this year, down from 8.5 percent last year. Next year, he anticipates growth will slow even further, to 7.0 percent - a real worry in a country where policymakers have said growth near 10 percent is required to absorb millions of young jobseekers and lift tens of millions out of poverty.
With monetary intervention largely tapped out and a deficit that gives the government little room for fiscal stimulus, economists and business leaders say broad reform is required to rekindle investment and growth. But the furore over the long-delayed decision to give foreign retailers greater access demonstrates the difficulty of implementing policy changes.
High inflation has weakened demand and prompted the central bank to raise interest rates 13 times over the last 18 months, crimping growth as a dour global economy squeezes credit and exports.
Policy inertia and corruption scandals have also slowed the flow of investment and helped push the rupee to record lows.
The quarterly results were in line with expectations and put pressure on the central bank to arrest the stream of rate rises.
Abheek Barua, HDFC Bank's chief economist, said: "There is clearly a momentum to deceleration setting in, largely driven by a declining investment cycle. The manifestations of that will be far more acute next year."
Gross fixed capital formation - a measure of investment - slid 1.8 percent from the previous quarter, to 4.0 trillion rupees (US$77.3 billion).
Barua predicted growth will be about 7.3 percent this year, down from 8.5 percent last year. Next year, he anticipates growth will slow even further, to 7.0 percent - a real worry in a country where policymakers have said growth near 10 percent is required to absorb millions of young jobseekers and lift tens of millions out of poverty.
With monetary intervention largely tapped out and a deficit that gives the government little room for fiscal stimulus, economists and business leaders say broad reform is required to rekindle investment and growth. But the furore over the long-delayed decision to give foreign retailers greater access demonstrates the difficulty of implementing policy changes.
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