India: 3Q GDP Growth Slows to 6.1%

February 29th, 2012
in econ_news

India-flagSMALLEconintersect:  India has experiences the seventh consecutive quarter of slowing GDP growth, coming in at 6.1% annual rate for the third quarter of the fiscal year ending March 31, 2012.  This is down from 6.9% in the previous quarter and also down from an estimate of 6.9% just three weeks ago (see GEI News).  In January estimates had been in the 7-7.5% range.  According to a Reuters article in The Times of India, the biggest factors in the slowdown were high interest rates and rising input costs.

Follow up:

The decline in nominal GDP is even sharper.  Inflation has been falling from above 10% in July 2011 to 6.55% in January, down from 7.47% in December.  As reported previously in GEI news, the government is believed to think that 6.5% is a desirable level for inflation.  Thus the RBI (Reserve Bank of India) may be ready to start reducing interest rates, which could provide a boost to economic activity.  The RBI did make a surprise cut in reserve requirements one month ago, perhaps signaling the start of a monetary easing interval.  (See GEI News.)

There is concern on the fiscal side over India’s continuing budget deficit, which could temper RBI monetary action.  From Bloomberg:

“There is a sustainable decline in core inflation and growth continues to be below trend but the only unseen is the fiscal-deficit number,” said Sonal Varma, a Mumbai-based economist at Nomura Holdings Inc. The budget gap is “the only reason why we are expecting a rate cut in April” rather than earlier, she said.

Tight monetary policy has been criticized by Econintersect correspondents Sunil Chandra and Sanjeev Kulkarni.  See GEI Opinion articles.

In spite of the slowing economy the Mumbai (Bombay) stock market has been booming over the past couple of months.  GEI News reported last week on an advance of 21% over about two months for the Bombay Sensex Index, which has come as the beaten down rupee has also rallied against the U.S. dollar by 8.5%.  This has created outsized gains for dollar denominated Indian ETFs traded on the New York Stock Exchange (17-39% in just two months).

John Lounsbury


News articles are found on Econintersect Asia/Pacific newspaper page


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