India Q2 GDP at 6.9%, slowest in over two years.

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India Q2 GDP at 6.9%, slowest in over two years.
NDTV Correspondent, NDTV, 30 Nov 2011 | 11:13 AM

Manufacturing growth has slowed down to 2.7 per cent against expectations of near 4 per cent levels and that is one of the main reasons behind the slowdown in overall economic growth.
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The Indian economy has expanded by 6.9 per cent in the second quarter ending September 2011, the government said today. This is the slowest pace of economic growth in the last nine quarters. In the first quarter of this fiscal, the gross domestic product, which is the measure of all finished goods and services produced in a country and indicates the economic health of a nation, stood at 7.7 per cent.

Manufacturing growth has slowed down to 2.7 per cent against expectations of near 4 per cent levels and that is one of the main reasons behind the slowdown in overall economic growth. The Index of Industrial Production (IIP) grew at its slowest pace in two years in September. The services sector, which grew at 10 per cent in the last quarter, has slipped to 9.3 per cent. The farm sector has grown at 3.2 per cent.

"It is lower than one expected but not very much lower...The number is still consistent with overall growth rate of over 7.5 per cent for the year. Perhaps the third quarter would be good and the fourth quarter would be over 8 per cent," C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council said.

The second quarter number might be revised upwards, Rangarajan told NDTV Profit.

The numbers are in-line with estimates. Consensus estimates had pegged the GDP at 6.9 per cent. The range of expectations from economists indicated a growth between 6 and 7.5 per cent.

"This is predictable. I don't thing growth will be more than 7.2 per cent for the whole year. The reason is in the fiscal deficit, the revenue component is so high - because of food subsidy, fertilizer subsidy, etc. - which are eating up our revenue. There is no multiplier effect for the economy," Venu Srinivasan, CMD of TVS Motors said.

A slowdown in the economy spells more troubles for the government which is still battling near double digit inflation. It also means more troubles for the markets that are trading at two year lows, mainly because foreign investors seem to have lost confidence in the India growth story.

The slowdown is also a manifestation of the repeated rate hikes - 13 over the past 18 months effected by the Reserve Bank. While these rate hikes have failed to bring down inflation, they have adversely affected the investment cycle.

India's Q2 GDP at 6.9%, slowest in over two years

 

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India's economic growth will slow further in Q3 to under 6.5% y-o-y， thanks to a multitude of factors， such as the recent rapid depreciation in rupee。

Virtually no industrial growth，stubbornly high inflation，rising interest rates，widening trade deficit，expanding fiscal deficits，fast-dropping rupee， policy inaction etc combine to make any pick up in the economy unlikely during the remainder of the FY。

FY 2013 will be similarly difficult if the external environment remains what it is today and inflation is not kept in check。

India needs to shift from a service centred economy to one that has manufacturing as its pillar of growth。