Indian Growth Slowest for 3 Years


India's economy grew at the slowest pace since 2004 last quarter as decade-high inflation and increased borrowing costs damped consumer spending.

Asia's third-largest economy expanded 7.9 percent in the three months to June 30 from a year earlier, following an 8.8 percent gain in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi today.

Inflation has almost tripled this year to 12.4 percent amid higher fuel and food prices, forcing the central bank to raise interest rates three times since June and making it harder for consumers to purchase cars, motorcycles and homes. Economic growth is still almost double the average pace since India's independence in 1947.

India may lose its position as the world's fastest-growing major economy after China this year, according to World Bank estimates. Russia's economy may grow 7.1 percent in 2008, overtaking India's 7 percent expansion this year, while China may increase 9.4 percent this year, the bank forecast in June.

Construction growth slowed to 11.4 percent in the quarter ended June 30 from 12.6 percent in the previous three months, while manufactured gained 5.6 percent compared to 5.8 percent in the first quarter, today's report said.

Inflation can win or lose elections in India, where about 456 million people live below the World Bank's poverty line of $1.25 a day. Singh lost ground in nine of 11 state elections since January 2007 because of rising prices. General elections are scheduled to be held before May.

Industry, which makes up a quarter of GDP, is getting support from investments in India's special economic zones, which are enclaves with uninterrupted power, water and other infrastructure support for manufacturers. Investments may reach 2 trillion rupees ($45 billion) in about 250 zones by December 2009, the commerce ministry estimates.

Still, the central bank's forecast of 8 percent economic growth in the year to March 31 will be weakest expansion since 2003 and comes after Singh presided over record average annual growth of 8.9 percent since 2004.

India's benchmark Sensitive index has declined by a third this year, while the yield on the key 10-year bond has climbed about 60 basis points to 8.80 percent. The rupee has weakened 8.3 percent against the U.S. dollar since Jan. 1.

The June-September monsoon, which accounts for four-fifths of the nation's annual rainfall, was 39 percent below average in the week ended Aug. 27, according to the weather office. A normal monsoon will help the country's 234 million farmers harvest a bigger crop and boost rural incomes.


TradingEconomics.com, Bloomberg
8/29/2008 6:34:59 AM