Aug 29, 2008

India - Economy growth slowest in 3 years

India’s economy grew at it slowest rate in three years, as it struggles to control record high inflation and tight credit conditions.
Annual growth slowed to 7.9 per cent in the first fiscal quarter of 2008 ended on June 30, significantly lower than the 8.8 per cent rate reported in March.
“Growth momentum has been slowing down on tighter monetary policy and adverse global environment. Higher interest rates, slower bank credit growth and higher oil and commodity prices are acting to curb activity levels in the economy,” said Gaurav Kapur, senior economist at ABN Amro.
In spite of the slowdown, the growth rate of Asia’s third largest economy remains strong, showing signs of resilience in the face of the global economic slowdown. China’s economic growth in the second quarter grew 10.1 per cent, down from 10.6 per cent.
The Bombay Stock Exchange’s benchmark Sensex index closed up closed up 3.7 per cent at 14564.53 points, with analysts saying the market had factored in the slower growth data. Sentiment was also boosted by lower inflation figures released on Thursday.
Several analysts said that they expect the Reserve Bank of India (RBI) to maintain a tight policy stance as it aims to bring inflation down, from double to single digits. Inflation fell in mid-August but economist expect it grow further later in the year.
”The RBI needs to maintain a tight stance to ensure that the effects of past tightening percolate through the economy,” said A Prasanna at ICICI Securities.
D.K. Joshi, chief economist at Crisil, the domestic ratings agency owned by Standard & Poor’s, said that he expected the RBI to go for “another round of monetary tightening this fiscal year”.
Growth in the services sector, which includes banking, transport and leisure, and the construction sector remained strong at 10 and 11.4 per cent respectively. The manufacturing sector suffered the sharpest fall as it grew only 5.8 per cent compared to 10.9 per cent in the same period in 2007.
Palaniappan Chidambaram, India’s finance minister, said that the economy should grow close to 8 per cent in the fiscal year ending March 2009.

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