Indian growth slides to 9-year low

	Shiv Sena activists chant slogans after setting fire to a scooter during a strike against a petrol price hike in Jammu on May 31, 2012

Story highlights

  • India's economic growth fell to a nine-year low in the first three months of 2012
  • Clear sign that the country's slowdown is deepening and affecting all sectors of the economy
  • Performance worse than after the global financial crisis and the collapse of Lehman Brothers

India's economic growth fell to a nine-year low in the first three months of 2012, a clear sign that the country's slowdown is deepening and affecting all sectors of the economy.

Sharp falls in the manufacturing and agriculture sectors led Asia's third-largest economy to grow only 5.3 per cent year on year in the quarter, compared with 9.2 per cent growth a year earlier.

This is the worst performance of India's economy since 2003 and far worse than the situation in the wake of the global financial crisis and the collapse of Lehman Brothers in late 2008, adding pressure on policy makers to take emergency actions to revive the country's growth.

"It's a disaster," said Rajiv Kumar, the secretary-general of the Federation of Indian Chambers of Commerce and Industry. "We are facing a crisis of slow growth and high inflation that is extremely concerning."

The disappointing growth data come as industrial production and exports plummeted in April, due to a sharp slowdown in domestic as well as global demand for Indian goods.

Inflation hits India's poor
Inflation hits India's poor


    Inflation hits India's poor


Inflation hits India's poor 02:56

India's economic difficulties are widely regarded as self-inflicted. Although Delhi often blames the eurozone sovereign debt crisis for India's woes, domestic economists argue that greater faults lie with those running the world's largest democracy.

"India's woes over the past two years, for the most part, may be traced back to one thing: weak policy," Jahangir Aziz, India chief economist at JPMorgan, wrote in the Indian Express. "The slowing growth, declining corporate investment, high and rising inflation, and now the sliding rupee, stem from the erosion of investor confidence in India's policies."

Parliament has been in a state of virtual paralysis since the Congress-led coalition government became embroiled in a wave of corruption scandals involving senior members of the cabinet. Key reforms -- including allowing foreign investment in India's retail sector as well as passing a law to facilitate the acquisition of land to develop vital infrastructure projects -- have been stalled in parliament for more than a year.

Economists last week forecast that growth would remain subdued this year. Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley downgraded their forecasts for India's gross domestic product growth in 2013, but still forecast that it would be above 6 per cent.

Analysts fear that slowing growth could further dampen investor confidence and lead global companies to search for safer investments, adding pressure on the already weak rupee.

"The India story has always been one of high growth, if this changes it could certainly affect investor sentiment and lead many to reconsider their position in India," said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered.

The rupee hit a fresh record low of Rs56.5 against the dollar on Thursday. Over the past eight months it has depreciated about 25 per cent against the dollar -- making it one of the worst performing emerging market currencies, according to BNP Paribas.

Industrialists complain that investment has been crippled by record high interest rates, in part blamed on the central bank's aggressive monetary tightening policy to reduce rampant inflation.

The Bombay Stock Exchange's benchmark index Sensex fell 1 per cent ahead of the GDP release, while India's benchmark 10-year bond yield dropped 3 basis points to 8.49 per cent.

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