India's Gross Domestic Product (GDP) grew at a slower than expected rate of 4.4% for the first quarter of the current financial year. This is below an ET Now Poll estimate of 4.6%. The economy grew at the slowest quarterly rate since the global financial crisis. The growth was contracted by a contraction in mining and manufacturing.
The agricultural sector of the economy grew at 2.7% versus 1.7% QoQ. Manufacturing sector growth contracted at (-)1.2%. While the trade and hotels growth cae in at 3.9% versus 6.2% QoQ, the construction sector grew at 2.8% versus 4.4% QoQ.
Electricity & gas sector grew at 3.7% versus 2.8% QoQ. Mining sector growth contracted at (-)2.8% versus (-)3.1 QoQ.
The Indian economy has been steadily losing momentum in recent years. Economic growth virtually halved in two years to 5 percent in the fiscal year that ended in March -- the lowest level in a decade -- and most economists surveyed by Reuters in the past week expect 2013/14 to be worse.
The industrial sector contracted in the first quarter, the 1.1% fall in the index of industrial production showed. The decline in the purchasing managers' index for services in the first quarter indicates a widening of the slowdown to services sector that expanded 6.5% last year. The HSBC Markit Services Purchasing Managers' Index fell to fell to 47.9 in July from 51.7 in the previous month, falling below the 50 mark that shows contraction.
Worryingly, apart from the good monsoon that can boost the rural economy, there is not to look ahead either. Even the effect of good monsoon will show up only from the second quarter. The severe liquidity squeeze unleashed by the RBI is unlikely to be a quick relief pill as initially believed, and may soon be replaced with a wider monetary tightening.
The rise in inflation to above 5% has further cramped RBI. "The situation calls for monetary tightening. The interest rate differential is needed to attract investment," said Devendra Pant, chief economist, India Ratings.
Higher interest rates will dampen demand and delay investments revival, and more importantly, the central bank will be out of the equation as far as stimulating growth is concerned.
Higher subsidies may force further reduction in spending, if P Chidambaram stays with his budgeted fiscal deficit target of 4.8% of GDP. The authorities were counting on the higher government spending to keep the economy afloat while the policy makers tried to get stalled investments moving through the cabinet committee on investments.
Emphasising the need for Parliament to run smoothly for boosting investors' confidence,Prime Minister Manmohan Singh on Friday said, "Its incorrect to say investors have lost confidence; Parliament is the supreme body, it is not being allowed to function."
Stating that the opposition needs to recognise its responsibility, Singh said that essential legislations need to be passed for future of the country. "Consensus building is the responsibility of government and opposition. It is the responsibility of the members of this house to send out a message," he reiterated.
"I do recognize there is a problem, it can be solved only if opposition recognizes its role, conduct in Parliament," he said in a reply to Arun Jaitley.
"We have a responsibility to act collectively to deal with this crisis on confidence," he said. "We need to make sure India perceived as creditworthy, bankable & viable," he added.
Earlier in the day the PM ruled out reversal of reforms or resorting to capital controls to rescue the sliding rupee, which he said fell on account of domestic as well as global factors.
Making a statement on the state of theeconomy in Parliament amid concerns over rapid depreciation of rupee, Singh said the country has to be ready for short-term shocks but the government will ensure that the fundamentals of economy remain strong.
"We are faced with challenges but we have the capacity to deal with them,", he said, while seeking support of all political parties in this situation.
Breaking his silence on the decline of rupee, he said there "may be short term shocks to our economy and we need to face them. That is the reality of the globalised economy, whose benefits we have reaped".
There is no question of reversing the policies just because there is some turbulence in capital and currency markets, he said, adding the "sudden decline in exchange rate is certainly a shock, but we will address this through other measures, not through capital controls or by reversing reforms".
source:Economic Times
