Econintersect: Growth in the Indian economy continued to slow in the second quarter 0f 2013 as GDP registered a 4.4% annual growth rate, down from 4.7% in the first quarter. The recent actions (raising interest rates) of the Reserve Bank of India (RBI) to try to stem the decline of the rupee has added to pressures limiting growth. The distress for India is evident when it is realized that GDP growth has not been this low for eleven years. Even in the Great Recession the lowest GDP growth rate was just under 6%.
According to analysis by GEI contributor Sanjeev Kulkarni, the decline of the rupee could be largely over for now. On 13 August, when the rupee was trading at 61, Kulkarni calculated that the value of the rupee should be approximately 68 to the U.S. dollar based purely on relative inflation rates over recent years. The rupee had a recent bottom just under 69 on 28 August and is now trading near 66.
If the rupee exchange rate has stabilized inflationary pressure could ease as the rapid increase in import prices (in rupees) would stopand India could possibly see an increase in exports arise from the lower rupee. Perhaps the bottom could be near for the declining GDP growth rate.
Sources:
- Slowest India Growth Since 2009 Pressures Singh to Support Rupee (Unni Krishnan, Bloomberg, 30 August 2013)
- India GDP Annual Growth Rate (Trading Economics, 02 September 2013)
- Runaway Rupee: The Taming of the Shrew (Sanjeev Kulkarni, GEI Opinion, 13 August 2013)
