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In this photograph taken on
May 31, 2011, an Indian worker drinks water as he works on a
construction site in New Delhi. India said on August 30,2013, that its
economy grew by an unexpectedly slow 4.4 percent in the first financial
quarter to June from a year ago, highlighting the weakness of the
once-booming country.
NEW DELHI: India's economy grew by 4.4 per cent in the first
three months of the fiscal year, the slowest quarterly expansion since
2009, data Friday showed, deepening the challenge facing policymakers to
arrest a sliding rupee.
Analysts blamed slumping investment, stubbornly elevated inflation,
high interest rates and muted export demand for the grim performance,
which undershot market expectations of 4.7 per cent year-on-year growth
in the first financial quarter.
“India's economy was already fragile before the recent rout of the
rupee. Given the ongoing turmoil, economic conditions look likely to get
worse before they get any better,” said Capital Economics economist
Daniel Martin.
India has been battling to restore investor confidence in its
once-booming economy and boost the value of the rupee, which has hit a
string of lifetime lows against the dollar, slumping 16 per cent so far
against the US currency this year.
The April-June growth, which was slower than the 4.8 per cent
expansion logged in the previous three months, marked the third straight
quarter of below five per cent growth, and was less than half the
double-digit level economists say is needed to reduce widespread
poverty.
“The concern on the economy can hardly be overstated, the economy
needs the undivided attention of policymakers,” said Chandrajit
Banerjee, director general of the Confederation of Indian Industry.
The Indian currency gained 1.5 per cent to 65.70 rupees to the
dollar, bolstered by reported heavy central bank intervention, while
shares closed up 1.2 per cent at 18,619 points on investor blue-chip
bargain-hunting.
But the weak growth was seen as amplifying negative sentiment toward
the rupee, whose tumble has come on the back of a record current-account
deficit, the widest measure of trade, that has alarmed foreign
investors and spurred a capital flight.
The funds exodus has also been greased by an expected end to US
monetary stimulus which sparked investment flows to emerging
markets.India, like many emerging markets, depends heavily on foreign
capital inflows to fund its balance of payments.
India's central bank raised short-term interest rates last month to
bolster the currency, but high interest rates are seen as discouraging
vital investment and delaying any economic upturn.
The growth numbers underscored difficulties ahead for incoming
Reserve Bank of India governor Raghuram Rajan, who takes the reins of
the central bank next week.
“Rajan will certainly have his work cut out for him,” said Anjalika Bardalai, analyst at research house Eurasia Group.
“The bank is having to bear the brunt of policy management, given the
fact the government is still more or less paralysed because of partisan
politics in the run-up to the general election next year,” she added.
The growth data showed widespread weakness with manufacturing
contracting by 1.2 per cent and services and construction output
slowing.
The quarterly growth was the most sluggish since early 2009, when
India and the rest of the world were staggering from the onset of the
global financial crisis.
The left-leaning Congress party-led government has forecast growth of
5.5 per cent this year, up from a decade low of five percent last year,
but most economists expect it to be below five per cent.
Earlier in the day, Prime Minister Manmohan Singh, making his first
major speech to parliament in months, said growth would “pick up in the
second half,” helped by strong monsoon rains that would boost harvests.
Singh, a renowned economist acclaimed for lighting the fuse for
India's fast growth in the 1990s as finance minister, has been under
fire as premier with his government hit by graft scandals that have
sapped investor confidence.
Seeking to steady investor nerves, he said there was no danger of a
repeat of India's 1991 balance of payments crisis in which a
foreign-exchange strapped government pawned its gold reserves for loans
from the International Monetary Fund.
Singh called the currency's plunge “a shock” but added there was no reason to believe “1991 is on the horizon.”
India is faced “with important challenges but we have the capacity to
address them, it is at times like these a nation shows what is truly
capable of,” he said.