India’s economy grew by 6.1 per cent in the final three months of 2011 –the slowest pace in three years, data showed yesterday, hit by aggressive interest rises and a stumbling global economy.
The figure for the financial third quarter was below market expectations of 6.3 per cent expansion and comes on the back of 13 interest rate hikes that have sapped demand and pulled down manufacturing output.
“India’s economy was battered from all angles through the second half of 2011 – from rising interest rates, falling stock prices, a plunging rupee and weaker global demand,” said Moody’s Analytics economist Glenn Levine.
The 6.1 per cent year-on-year growth was sharply lower than the 6.9 per cent expansion Asia’s third-largest economy booked in the previous quarter.
It also marked the weakest pace of growth since the October to December quarter of 2008, said Credit Suisse senior economist Robert Prior-Wandesforde.
With growth slowing sharply and inflation at two-year lows, analysts forecast the central bank will cut rates at its next meeting on March 15, joining emerging market peers that have moved from fighting inflation to prodding expansion.
Manufacturing output in the three months to December grew just 0.4 per cent, down from 7.8 per cent in the same period a year ago.
Agriculture increased by 2.7 per cent, down from 11.08 per cent a year ago, while mining growth contracted by 3.1 per cent in contrast to its 6.1 per cent expansion a year earlier.
“Overall this is a weak set of numbers,” Moody’s Levine said.
The latest data highlighting a faltering economy comes as more bad news for the Congress-led government, already buffeted by a string of corruption scandals and accusations of economic policy paralysis.
The government, hamstrung by debt, also lacks the fiscal firepower to stimulate the economy, making it less able to weather another downturn after the financial crisis of 2008-09.
But some analysts believe the economic downturn could have bottomed-out and growth may pick up again in the January-March quarter. Finance Minister Pranab Mukherjee, who is to present the national budget in March, asserted this week the “worst state” of the slowdown was over.
The Indian slowdown comes as growth in China has also decelerated as global turbulence and efforts to tame inflation put the brakes on the world’s second-largest economy.
China’s economy expanded by 8.9 per cent in the last three months of 2011, its slowest growth in 10 quarters. Moderating activity in the two emerging market giants has weakened hopes that they could help buoy the stumbling global economy.
Even though 6.1 per cent growth would be the envy of much of the world, it is a disappointing result for India, which is aiming for double-digit expansion. Government experts have traditionally pinpointed at least nine to 10 per cent growth as the minimum level to substantially reduce the crushing poverty afflicting hundreds of millions of Indians.
For the full financial year to March, India will probably grow by 6.9 per cent – far below an initial budget projection of nine percent – and down from last year’s 8.4 per cent expansion, the government said earlier this month.
To achieve the 6.9 per cent growth estimate, the economy will need to expand by about seven per cent in the final March quarter, said Credit Suisse’s Prior-Wandesforde.
“This is not impossible – but clearly the risks are that a downward adjustment will need to be made,” he said.