India: GDP Estimate Down to 6.9% Growth

Econintersect:  The advance estimate for GDP in the current fiscal year which has less than two months remaining has been adjusted sharply lower.  The estimate was released February 7 by the Central Statistical Organisation (CSO).   Less than a week ago the expectation was lowered to 7-7.5% after comments by Prime Minister Manmohan Singh on Friday February 3.  GDP growth in the previous fiscal year 2010-11 was 8.4%.  Especially hard hit segments of the economy are agriculture down to 2.5% growth from 7% last year, and manufacturing at 3.9% down from 7.6%.

The RBI (Reserve Bank of India) has been tightening monetary policy for much of the past two years to fight stubbornly high inflation which has shown signs recently of partial abatement. On January 25 the RBI made a surprise move in cutting the CRR (cash reserve requirement) for banks, the first monetary easing after the long tightening period. Declining GDP growth may occasion further easing action, especially if inflation continues to behave better.

A growth rate of 6.9% will make the current year the slowest of any year in the last nine except for 2008 (fiscal year ending March 31, 2009) when the world economy was decimated by the financial crisis.

Graph from The World Bank.

Sources:

• India Expects GDP to Grow 6.9% (Mukesh Jagota and Anant Vijay Kala, The Wall Street Journal, 7 February 2012)

• Growth in 2011-12 likely to be lower at 7-7.5%: PM (Hindustan Times, 3 February 2012)

• Economy to grow 6.9% in 2011-12 against 8.4% last financial year: Govt estimates (The Times of India, 7 February 2012)

• India: Inflation Lower, Rupee Higher (GEI News, 18 January 2012)

• India: Surprise Reserve Requirement Cut (GEI News, 25 January 2012)

Hat tip to Sanjeev Kulkarni.