India?s Q1 GDP Growth Rises To 5.5%

   on August 31 2012 2:19 AM
Indian Rupee 100 notes
An employee arranges Indian currency notes at a cash counter inside a bank in Agartala, capital of India's northeastern state of Tripura, June 3, 2010. Reuters

India's economic growth rose in the first quarter of the fiscal year 2012-13 compared to the January-March quarter of the last fiscal, indicating that the country's economy is moderately improving though the soft global demand and the weak domestic policy measures have affected it.

India's gross domestic product (GDP) grew by 5.5 percent in the first quarter, up from 5.3 percent in the previous quarter, according to the data released by the Central Statistical Office.  However, the economy continues to face a slowdown, compared to the previous years.

In the quarter ending December 31 2011, the GDP growth was 6.1 percent. In the 2011 July-September quarter, growth was 6.9 percent. The country saw an annual growth of 8.4 percent in the last two fiscal years.

The slowdown is to a great extent attributed to the weak governance. Market players are worried to note that the current government's second term, which began in 2009, has so far seen no significant economic reform.

Last month, in its policy statement, the Reserve Bank of India (RBI) cut its growth forecast for this financial year (April-March) from 7.3 percent to 6.5 percent. Investors worry that even this rate can turn out to be too optimistic with the global economic condition worsening and the disappointing monsoon, which will have a significant negative impact on the output, inflation and budget.

The RBI is expected to ease rates soon amid growing concerns about the deteriorating growth prospects of the country's economy. Lower interest rates are much needed to support the economy, which has shown signs of losing momentum in the past few months. In April, the central bank surprised the markets with a 50 basis point cut in the main interest rate.

India's industrial sector has been the worst affected with output of capital goods falling steadily. The growth of the automotive sector has fallen and business surveys point to no improvement. The reasons for this include the slow public sector investment and bureaucratic obstacles to large scale investment projects. Private sector business confidence has also been damaged by the sense of policy paralysis and by the failure to implement promised reforms.

India's current account deficit is also weighing on the sentiment. The current account deficit climbed to 4.5 percent of gross domestic product (GDP) or $21.7 billion in the January-March quarter, up from $6.3 billion in the same quarter in the previous financial year. Trade deficit has also advanced to $51.6 billion in the January-March quarter, up from $48.7 billion in the preceding quarter.

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