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Indian Economy Grows at Slowest Rate in a Decade

May 31, 2013
Low business confidence, slumping investment, high inflation and weak export demand from Western countries are blamed for the poor performance.

NEW DELHI -- India's economy grew by 5% in 2012/2013, its slowest annual rate in a decade, data showed Friday.

Low business confidence, slumping investment, high inflation and weak export demand from Western countries are blamed for the poor performance of the once-booming South Asian economy.

In the fourth quarter to the end of March, gross domestic product grew by 4.8% year-on-year, slightly higher than the previous quarter when it expanded by 4.5%, according to the data from the statistics ministry.

Despite government efforts to talk up the economy after a burst of pro-market reforms at the end of last year, most independent analysts see continuing slack demand and few quick fixes.

"Growth momentum remains weak and the recovery subdued," said Siddhartha Sanyal, chief India economist with Barclays Capital.

In 2011/12, the economy grew by 6.2%, a sharp slowdown from the previous year when growth hit 9.3%.

Global ratings agency Standard and Poor's warned earlier this month that India faces at least "a one-in-three" chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms. India's BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa, and cutting it to "junk status" would raise the country's hefty borrowing costs.

The Organization for Economic Cooperation and Development (OECD) this week lowered its projection of India's GDP growth for this year to 5.3%, from 5.9% earlier.

In the January-March quarter, the vital job-creating manufacturing sector increased output by just 2.6%, while production in the country's mines shrank by 3.1%.

The services sector comprising banks, insurance and real estate was a rare bright spot, showing growth of 9.1%.

In a brief reforming period last year, the government opened up the retail and aviation sectors to wider foreign investment and partly freed fuel prices to reduce its burgeoning subsidy bill.

But faced with a hostile parliament and a shaky ruling coalition, it has since failed to pass mooted legislation to open up the insurance and pension sectors or a long-delayed law to simplify land acquisition. "The recent sessions of parliament have been less productive," said Rao from Yes Bank.

Government pressure has mounted on the central bank to ease borrowing costs after it raised interest rates aggressively in 2010 and 2011 to combat double-digit inflation last year. It has obliged by cutting interest rates three times in 2013, but Reserve Bank of India governor Duvvuri Subbarao has said the bank has "limited space" to ease monetary policy further due to the risk of inflation flaring up again.

India's wholesale inflation, its most widely watched measure, cooled last month to a surprise 41-month low of 4.89%. But the consumer price index is at 9.39%, led mainly by high food and beverage prices.

-Adam Plowright, AFP

Copyright Agence France-Presse, 2013

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