India’s economic growth probably slowed last quarter to match a three-year low as elevated inflation and subdued investment add pressure on Prime Minister Manmohan Singh to extend a recent policy overhaul.
Gross domestic product rose 5.3 percent in the three months to Sept. 30 from a year earlier, the median of 36 estimates in a Bloomberg News survey shows ahead of a report due Nov. 30. That would be the same as in January-to-March this year and less than the 5.5 percent pace of the second quarter.
Singh’s revamp to lure foreign investors has been hampered by trade and budget deficits that have hurt the rupee, whose 3.4 percent drop versus the dollar in the past month is the world’s worst. Opposition to his push to open industries such as retail, pensions and insurance to overseas companies risks gridlock in parliament, dimming the outlook for Asia’s No. 3 economy.
“India needs to revive investment, but that will happen only when inflation and the fiscal deficit come down and reforms accelerate,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “Without all that, growth and the rupee may remain under pressure.”
Singh’s coalition changed course in mid-September to curb fuel subsidies and attract more foreign investment, losing its parliamentary majority in the process after lawmakers objected.
The rupee has erased gains sparked by the revamp, partly on concern that the discord signals India may fail to return economic expansion to the five-year average of about 8 percent.
Inflation has exceeded 7 percent for most of 2012, fanned by food costs, supply bottlenecks and rupee weakness.
Price pressures in India, where more than two-thirds of people still live on less than $2 per day, have limited its room to join emerging markets from Brazil to Thailand in further cutting interest rates as global growth falters.
The rupee strengthened 0.5 percent to 55.455 per dollar at the close in Mumbai. The BSE India Sensitive Index (SENSEX) of stocks rose 1.7 percent. The yield on the 10-year bonds due June 2022 fell to 8.19 percent from 8.20 percent on speculation the central bank will resume open-market debt purchases to help ease a cash squeeze.
Parliament was adjourned today as opposition lawmakers demanded a vote on the government’s Sept. 14 decision to allow companies such as Wal-Mart Stores Inc. to set up supermarkets. They fear small shopkeepers will be forced out of business.
The disruption casts a cloud over Singh’s ability to push through bills that would enable overseas companies to invest in the pensions industry for the first time, and hold as much as 49 percent of insurance businesses.
“The tardy pace of implementation of reform measures only goes to undermine investor confidence,” said Amol Agrawal, an economist at STCI Primary Dealer Ltd. in Mumbai.
Inflation measured by the wholesale-price index was 7.45 percent in October, the fastest in the BRIC group of largest emerging markets that also includes Brazil, Russia and China. India has the widest BRIC fiscal gap.
The nation’s trade shortfall widened to a record $20.96 billion last month. Industrial output shrank in September as capital-goods production, a gauge of investment in factories and machinery, slid for a seventh month.
GDP may expand about 5.5 percent in the three months to Sept. 30, Finance Minister Palaniappan Chidambaram said Nov. 24.
Elsewhere in the Asia-Pacific region today, a New Zealand government report showed a wider annual trade deficit than economists predicted. China said industrial companies’ profit gains surged in October, while Hong Kong’s exports unexpectedly contracted 2.8 percent.
Thailand’s manufacturing production advanced 36.1 percent in October from a year earlier, rising for the first time in five months. The country will probably leave rates at 2.75 percent tomorrow, according to a Bloomberg survey. Philippine GDP growth likely eased to 5.4 percent last quarter from a year earlier, another poll shows ahead of a report tomorrow.
U.S. data are due today on durable goods orders, consumer confidence, home prices and mid-Atlantic region manufacturing.
In the U.K., GDP grew 1 percent from the previous three months. In Paris, the Organization for Economic Cooperation and Development cut its growth forecasts and warned of the risk of a “major” global recession.
Chidambaram has sought to bolster India’s prospects by pledging to contain the fiscal deficit at 5.3 percent of GDP in the year through March 2013 to boost scope for rate cuts.
The government increased diesel prices in September by about 14 percent and curbed the supply of below-cost cooking gas to tackle energy subsidies and avert a credit-rating downgrade.
The finance minister said today the government will begin transferring some subsidies directly to the bank accounts of the poor in parts of the country from Jan. 1, as officials step up efforts to avoid waste to help tackle the budget shortfall.
The administration also plans to set up a panel led by Singh to speed up approvals for road, rail and port construction, including as much as $18 billion of stalled projects, two officials with knowledge of the proposal said last week.
Moody’s Investors Service reiterated its stable outlook on India’s credit rating today. Standard and Poor’s and Fitch Ratings cut their outlooks to negative earlier in 2012. All three rank the nation at the lowest investment-grade level.
Reserve Bank of India Governor Duvvuri Subbarao on Oct. 30 resisted Chidambaram’s calls for lower borrowing costs to spur investment, leaving the repurchase rate at 8 percent while cutting banks’ reserve requirements to aid lending.
At the same time, the central bank signaled it may reduce rates next quarter if inflation eases. Subbarao has left the policy benchmark unchanged since a 50 basis-point cut in April.
India should ease monetary policy as subdued economic expansion in the near term helps to damp inflation, the OECD said in its Economic Outlook report.
The cost of credit has crimped spending. Sales of Hero MotoCorp Ltd. motorcycles fell in three of the past four months.
“The central bank’s room to cut interest rates is rather limited,” said Rupa Rege Nitsure, an economist at state-owned Bank of Baroda in Mumbai. “The government’s intention to cut the deficit is good, but it has to deliver.”
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