The Indian Economy Grows at Slowest Pace Since 2003

India growth rate slows to 5.3% in first quarter

Yogita Limaye reports from Gujarat on the problems caused by the weak currency

31 May 2012 Last updated at 10:33

The Indian economy grew at the slowest rate since 2003 in the first three months of 2012, due to a widening trade gap and poor investment.

India’s gross domestic product (GDP) grew by 5.3% in the quarter compared with a year earlier, data showed.

That is down from 6.1% in the previous quarter. Analysts were expecting the same figure for January to March.

India is the third-largest economy in Asia but has been struggling with inflation and currency weakness.
‘Shocking numbers’

Since July last year, the Indian rupee has seen one of the biggest declines among Asian currencies, dropping more than 27% against the US dollar.

“Shocking numbers as growth was even lower than lows witnessed during the financial crisis,” said Anubhuti Sahay from Standard Chartered Bank in Mumbai.

The BBC’s Yogita Limaye in Mumbai said that just a year ago India was aspiring for double-digit growth.

But a global slowdown has reduced external demand, and high inflation coupled with a weak rupee has made things more expensive within the country.
‘Comatose government’

Domestic demand, which India’s economy is largely reliant on, has also slowed in part due to the political upheaval in the country.

The recent slowdown in growth has been most pronounced in India’s industrial sector

India’s economy is suffering from “policy incoherence, shifting global risk appetite and a comatose government”, said Rajeev Malik, senior economist at brokerage CLSA

India’s Prime Minister Manmohan Singh admitted early this month that his government must do more to get the once fast-growing economy moving again.

The Congress-led coalition government is caught up in a slew of corruption scandals.

Key policy reforms, including allowing foreign investment in India’s retail sector, have been delayed in parliament for more than a year.

This has worried foreign investors and threatened the country’s investment grade credit rating.

“This is definitely a very important signal for the government – this is a make or break situation for India and the government has to step on the panic button,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

“If the government doesn’t step in now, India’s sovereign ratings may be jeopardised.”

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