Indian economic growth slows to 5.3%

Indian economic growth slows to 5.3%

Sluggish expansion raises hopes RBI may cut interest rate to boost investment



By (AFP)

Published: Sat 29 Nov 2014, 9:15 AM

Last updated: Sat 4 Apr 2015, 3:20 AM

Workers pack airconditioners at a factory in Neemrana,Rajasthan. growth in the Indian manufacturing sector softened

Workers pack airconditioners at a factory in Neemrana,Rajasthan. growth in the Indian manufacturing sector softened to just 0.1 per cent year-on-year. — Reuters

New Delhi: India said on Friday the economy grew 5.3 per cent from July-September year-on-year, significantly slower than the previous three months, stirring hopes of interest rate cuts to boost investment.

The performance was a little better than market forecasts of 5.1-per cent expansion in the second quarter of the financial year, but still a sizeable downturn from 5.7-per cent growth in the previous three months.

The data was released days before the hawkish Reserve Bank of India (RBI), which has held its benchmark lending rate at a steep eight per cent since last January, meets for its regular monetary policy review.

The latest figures “build on the growing case for rate cuts”, said Shilan Shah, analyst at research house Capital Economics.

“There is increasing slack in the economy, consumer price inflation has slowed further than most expected, and the current account has narrowed sharply over the past year,” said Shah.

Jumpstarting growth is key for India’s new Prime Minister Narendra Modi, who led his right-wing Bharatiya Janata Party to a massive electoral win in May on promises to revive Asia’s third-largest economy. India has been mired in its worst slowdown in two decades.

Growth was 4.7 per cent in the last financial year — around half of the near double-digit levels seen a few years ago — hit by high interest rates to curb inflation, a lacklustre global economy and a fall in foreign investment amid corruption scandals which embroiled the previous Congress government.

The central bank has forecast growth of 5.5 per cent this year, slightly below the government’s target of 5.8 per cent.

These figures may seem high by the standards of developed nations, but economists say India needs at least eight-to-nine per cent growth to create jobs for a ballooning youth population.

A breakdown of the latest growth figures showed activity slowed in most sectors over the quarter.

Notably, growth in the manufacturing sector softened to just 0.1 per cent year-on-year, down from 3.5 per cent expansion in the previous three months.

The figures also showed a sharp slowdown in investment and net exports. Economic growth is likely to remain sluggish in the near-term with industrial production still moribund, analysts added.

Most economists expect the RBI, which has vowed to “break the back” of chronic inflation, to hold interest rates steady until the of the next financial year in April.

But some expect the bank to begin lowering rates as early as the policy meeting on Tuesday.


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