India: GDP Slumps, Rupee Declines and Industry Calls for Action

June 2nd, 2012
in econ_news

Econintersect:  India announced this week that GDP growth in the January to March quarter of 2012 had been only 5.3% (annual rate).  This is much below India-flagSMALLrecent economic growth which has been as high as 9% in some quarters in 2010.  For the most recent four quarters India’s GDP has grown by 6.5%, down from 8.6% growth the four quarters before that.  The current quarter is weaker than the worst quarter of the Great Financial Crisis (GFC) when the worst quarter (January – March 2009) grew by 5.8%.  The worst four quarter span of the GFC saw India GDP growth of 6.2%.  The current four quarter number (6.5%) is very close to the earlier low.

Follow up:

Click on graph for larger image.India-gdp-3Q-2008-1Q-2012-580px

The RBI (Reserve Bank of India) had estimated that the fiscal year ended March would record GDP growth of 7%.  That, by inference, indicates that the RBI expectation for the most recent quarter had been above 7%.  The 5.3% number is a major miss.  Another big miss was made by chief economic advisor to the finance minister.  On May 10 Kaushik Basu estimated 7.6% GDP growth for the next four quarters (fiscal year 2012-13) and that would follow 6.9% growth for the previous four quarters, which have now come in at 6.5%.  These projections imply that Basu expected the latest quarter to come in at 6.9%.

The Indian projections are not the only ones that have been disappointed.  Just over one week before the 5.3% reading was made public, the OECD (Organisation for Economic Cooperation and Development) had reiterated its estimate for much stronger growth for next year than the latest quarter has shown.  As reported in The Economic Times:

India’s economic growth is likely to rise to more than 7.5 per cent in calendar year 2013 but continued government policy uncertainty could erode the country's longer-term growth prospects, the OECD said on Tuesday.

It is unlikely that they were considering a low five reading for any quarter in the current calendar year when they made the 7.5% estimate.

A leading industry figure, Adi Godrej, president of the Confederation of India Industry (CII), has called for a full 100 basis point interest rate cut and a government stimulus package to get the economy turned around (The Times of India).

The Rupee has continued to weaken, down another 3% since GEI News last reported on the currency May 17.  The last trades on June 1 saw the exchange rate at 55.54 to the dollar, which was actually a rally of nearly 1% from the low seen the day before of 56.08..

John Lounsbury


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