GROWTH IN INDIA

INDIAN GROWTH FIGURES SURPRISES ON DOWNSIDE

Robert M Cutler

Asia Times, June 6, 2012

MONTREAL - The headline figures from India's release of economic data shocked observers as the country's economic growth in the January-March period fell to 5.3% year-on-year, the lowest rate of expansion in nine years and almost a full percentage point below the consensus estimate established by a Bloomberg News survey. Growth was down from 6.1% in the fourth quarter of last year.

Searchers for a silver lining to the dark cloud can point to report from DBS Bank's Daily Breakfast Spread that sequential growth (ie from one quarter to the next) for the January-March period this year was above the last quarter of 2011, and comfortably up from the "mere" 3-4% of the last six months of 2011.

The implication is that growth has accelerated since last year, when the economy would have bottomed out. However, "sequential growth in the last three quarters has averaged a mere4.5%," which is "much weaker than the headline year-on-year growth" suggests.

A report by the Asian Development Bank (ADB) enumerated the factors in the downdraft: a tight monetary policy to restrain persistently high inflation, continuing weakness in the global economy including its financial aspects, an increased budget deficit arising from larger subsidies, and a "lack of political consensus on resolving the policy impediments to growth".

Gross domestic product (GDP) for the 2011 fiscal year, which in India runs from April 2011 through March 2012, rose 6.5%, down from the 8.4% growth rate during 2010-11. The consensus growth currently expected for the 12 months to next March is 7.3%. Foreign observers, including but not limited to the ADB, anticipate recovery to be led by investment, and in particular by increased capital expenditure under the government's new five-year economic plan, since the still high rate of inflation makes the cost of capital more difficult for the private sector.

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