Indian Economy Hit by High Inflation, Slowing Growth

Thursday, 29 December 2011, 06:53 Hrs
Printer Print Email Email

New Delhi: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.

"This is worrisome. Companies are not investing in new machinery equipment. The government is not in a position to spend to push growth because of the problems of fiscal deficit," said Sanjeev Krishan, executive director at PricewaterhouseCoopers (PwC).

In a bid to curb inflation, the Reserve Bank of India has hiked key policy rates 13 times since the beginning of 2010. It made the cost of capital expensive, hitting industrial and overall economic growth.

In fact, India's annual rate of inflation based on wholesale prices remained in double-digit levels almost throughout the year. The headline inflation finally dropped to 9.1 percent only in November.

But to the relief of policy-makers and the public at large, food inflation declined sharply and even fell to a four-year low of 1.81 percent for the week ended Dec 10.

The falling value of the Indian rupee was another matter of concern. It has weakened almost 16 percent against the US dollar since the beginning of the year, the worst performance among the Asian currencies.

The partially-convertible rupee got battered in the last two months, hitting a record low of 54.30 against a dollar Dec 15 -- almost 24 percent down from the year's high of 43.85 recorded July 27.

Looking ahead, the medium-term prospect does not appear that rosy, going by the forecast made by the Reserve Bank of India. "While inflation remains on its projected trajectory, downside risks to growth have clearly increased," the bank said.

Following are the highlights of India's economy in 2011:

* GDP growth target set at nine percent for 2011-12 against 8.5 percent in last fiscal, but likely to remain around seven percent.

* Growth was sluggish: 7.8 percent in January-March, 7.7 percent in April-June, 6.9 percent in July-September.

* Inflation remained stubbornly high near double-digits.

* Central bank hiked key policy rates 13 times in two years.

* Industry growth hurt and slipped into the negative in October.

* Exports grew 33.2 percent at $192.7 billion during first eight months of this fiscal.

* Rupee fell to record low of 54.30 against a dollar, down 24 percent from the year's high.

Source: IANS
GST rate cut to spur Bengaluru
The realty market in India's tech hub is set to grow as lower Goods and Services Tax (GST) rate..
Ola raises Rs 400 cr for electric
Leading ride-hailing cab aggregator Ola on Friday said it raised Rs 400 crore from its early in..
SpiceJet plans aggressive
Budget passenger carrier SpiceJet plans to aggressively expand its international networks to fl..
Fossil Group sells smartwatch
Global watch and accessories maker Fossil Group has announced to sell its smartphone technolog..