Indian economy slumps to weakest growth in 3 years

Wed Feb 29, 2012 7:39am EST
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By Rajesh Kumar Singh and Manoj Kumar

NEW DELHI (Reuters) - India's economic growth slowed to 6.1 percent in the three months to December, the weakest annual pace in almost three years, as high interest rates and rising raw material costs constrained investment and manufacturing.

The dismal numbers showed the weakness in the economy was spreading beyond industry, to the services sectors, and are certain to intensify pressure on the authorities to stimulate the flagging economy.

They make official forecast for 6.9 percent growth in the financial year ending in March look optimistic yet economists doubt much stimulus will be forthcoming as a fiscally constrained government focuses on finding money for fuel and food subsidies to win votes.

Rising oil prices may also push up inflation, making it harder for the central bank to cut rates quickly.

"Given the slippages we are seeing in agriculture and manufacturing sectors, it will be difficult for GDP to recover ground in January-March period," said Madan Sabnavis, chief economist at CARE Ratings in Mumbai.

The 6.1 percent rise in gross domestic product was lower than the consensus view in a Reuters poll of 6.4 percent. It was the seventh successive quarterly slowdown and marked a pullback from 6.9 percent growth in the quarter to end-September.

The manufacturing segment was at its weakest in 3 years at 0.4 percent growth, mining subtracted from output for a second quarter, while agriculture softened to a 2.7 percent annual pace.

The data provides a gloomy backdrop for a central bank policy meeting and federal budget, both due in just over two weeks.   Continued...