India's growth slows further

NEW DELHI: India posted its slowest economic growth in six quarters yesterday, with output up 7.7 per cent year-on-year, as expansion was hit by the longest stretch of monetary tightening in a decade.

The figure for the three months through June slightly outpaced market expectations but was just below the 7.8 per cent expansion logged in the previous quarter and sharply down from the 8.8 per cent a year earlier, the statistics agency said.

"The data clearly shows the economy has slowed appreciably in the last 12 months," said Brian Jackson, senior emerging markets strategist at the Royal Bank of Canada in Hong Kong.

"The aggressive monetary policy tightening by the Reserve Bank of India has had an impact on growth. But it won't stop them from raising rates - they've already said they're prepared to accept slower growth to lower inflation."

Analysts had pegged growth at 7.6 per cent for the three months.

Most analysts forecast another 25 basis point rate hike in September by India's central bank, which has already raised rates 11 times in 18 months in a bid to curb inflation now near 10 per cent.

"India has raised rates much faster than any other major country but inflation is also a bigger problem than in any other major economy," DK Joshi, chief economist at leading Indian rating agency Crisil, said.

He forecast another quarter point hike by the bank next month that would lift its benchmark lending rate to around a three-year high of 8.25 per cent.

The bank has said it is unwilling to accept high inflation as "the new normal" and last week warned of "a difficult year".

The higher rates have made borrowing for everything from cars to consumer appliances to plant equipment more expensive, and slowed investment and consumer demand in Asia's third-largest economy.

The slowing economy and high inflation comes as another headache for the besieged Congress-led government.

It is already battling a slew of corruption scandals that have triggered huge anti-graft protests and stalled ambitious economic reforms which economists say are a key to spur growth.

The central bank expects expansion of 8 per cent this fiscal year to March 2012 after the economy grew 8.5 per cent the previous year. But some economists expect growth in the low 7 per cent range.

While 7 per cent expansion appears rapid compared with sluggish Western growth, economists say the slowing growth will undermine government efforts to tackle India's endemic poverty.

The administration of Premier Manmohan Singh, hamstrung by debt, lacks the fiscal firepower to stimulate the economy, making it less able to weather another global downturn after the financial crisis of 2008-2009.

Underscoring the slowdown, manufacturing growth fell to 7.2 per cent during the quarter from 10.6 per cent in the same period last year. Construction plunged to 1.2 per cent growth from 7.7 per cent a year earlier while mining also slid.

The data followed a survey by the Federation of Indian Chambers of Commerce and Industry on Monday which showed business confidence at a two-year low.

The survey reflected "growing apprehensions about the world economy entering into another recession" while at the domestic level, rising interest costs and weak domestic demand "are taking their toll," the group said. - AFP