Indian growth slows for fifth quarter

By Amy Kazmin in New Delhi

Published: May 31 2011 09:58 | Last updated: May 31 2011 09:58

India’s economic growth slowed for the fifth consecutive quarter as rising interest rates and paralysis in the scandal-plagued government curbed company investment.

The economy grew more slowly than expected – 7.8 per cent in the fourth quarter of the April to March financial year – and at its slowest pace for five quarters.

For the full 2010-11 financial year, India’s growth was 8.5 per cent, just below the 8.6 per cent government prediction, but up from the 8 per cent annual growth it had registered to March 2010.

Investment growth for the year was a 0.4 per cent, evidence that companies are feeling the pinch from steadily rising interest rates – as the government battles to control persistently high inflation – as well as numerous bottlenecks delaying projects.

For much of the past six months, the Congress-led government had been distracted by the telecoms spectrum scandal and concerns about approaching state assembly elections, while policymaking, and project approvals, had almost halted.

Sonal Verma, India economist for Nomura, said: “Interest rates have been going up, so that is perhaps deterring companies from taking big decisions, but I think it is more policy blockages. Government decision-making has been very slow.”

She said investment could pick up in the second half of the year, if the Congress-led government began to send out the right policy-making signals, but she predicted that the next two quarters would continue to see growth slowing, as stubborn inflation pinched consumer pockets.

“We are starting the year out with clear signs of a slowdown in domestic demand, with inflation going higher,” she said. “That is going to mean the next couple of quarters are going to continue to see a slowdown. Hopefully, the policy paralysis will end and that could have some positive impact.”

However, Montek Singh Ahluwalia, deputy chairman of the planning commission, said he believed India’s economy would still grow between 8 and 8.5 per cent during the current financial year.

He attributed the fourth-quarter slowdown to a statistical “base effect” as the same period last year had registered particularly strong growth of 9.4 per cent.

However, he acknowledged “industry will have to grow much faster,” if growth targets are to be achieved.

From January to March, India’s farm output grew by a robust 7.5 per cent, compared to a meagre 1.1 per cent during the same period last year.

However, manufacturing growth slowed sharply to 5.5 per cent, down from 15.2 per cent last year, while mining grew just 1.7 per cent, compared to 8.7 per cent during the fourth quarter of last year. Companies have complained that problems acquiring land, and environmental clearances, have impeded expansion.

Mr Ahluwalia said that fostering a rebound in investment “should be our main objective” in the coming year.

He said: “If you get a rebound in investment, you can see an acceleration in manufacturing growth. I certainly hope in investment you will see that happening.”

He also said he expected inflation would gradually moderate over the current financial year.

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