India Grows 5.5%, Beats Forecasts

Aug. 31, 2012
Has India's economy bottomed out? Is the worst over?

India logged slightly faster quarterly growth of 5.5% on Friday, and analysts said the nation's economy may have "bottomed out" though any recovery would be modest.

While growth is still stuck around three-year lows, the official figure for the three months to June marked a small improvement on the previous quarter's 5.3% expansion and marginally outpaced market forecasts.

The figure for the first financial quarter "gives reason to be cautiously optimistic that growth may have bottomed out, barring a further worsening of the debt crisis in Europe," said HSBC's chief India economist Leif Eskesen.

Agricultural output rose by 2.9%, while industrial production remained broadly unchanged at 0.8% expansion, as did services at 7.4%, the data from the national statistics office showed.

But not everyone believed the worst was over for Asia's third-largest economy, which has been hit by high interest rates, declining investor confidence, political policy paralysis, stalled economic reforms and the global downturn.

Private consumption growth -- a measure of consumer spending -- was just 3.9% -- the lowest figure since early 2003 -- according to HSBC.

"The last and largest bastion of growth, private consumption, is finally crumbling," said Ajay Bodke, investment strategy head at Prabhudas Lilladher, saying he expected "a rough ride for the next couple of quarters."

Business leaders, too, clamored for action by the Congress-led government and the central bank to stimulate growth.

"The numbers leave no doubt about the criticality of the situation," said Chandrajit Banerjee, director general of the Confederation of Indian Industry, appealing for "coordinated monetary and fiscal intervention."

But Prime Minister Manmohan Singh's government, also reeling from a string of political scandals, has little room to increase spending to spur growth due to its ballooning current account and fiscal deficits.

Social spending soared by 7.9% in the quarter, up from 3.25% growth a year earlier, underscoring worries about the government's huge subsidy bill to support India's hundreds of millions of poor.

While other central banks globally have been easing rates to revive their troubled economies, India's hawkish central bank has kept borrowing costs on hold since April -- when it cut them for the first time in three years.

"Some sacrifice of growth in inevitable, a necessary price we have to pay to bring down inflation" which is still "high and persistent," central bank Governor D. Subbarao said earlier this week.

Economists said the better-than-expected growth data made chances of a further immediate rate cut even less, sending shares down around one percent.

The new figures came days after India quietly revised past gross domestic product (GDP) data -- a move critics said raised questions about the reliability of the nation's statistics and could hurt the investment climate.

"The revision in GDP numbers has created concern for industry especially in a global environment where investment sentiments are low," said CII's Banerjee.

"Such large-scale revision in GDP numbers can affect the certainty in investment decisions."

Copyright Agence France-Presse, 2012

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