India Growth Slows to 4.7% With Rebound Seen Hinging on Election

India’s economic growth slowed last quarter, holding below 5 percent and denting the Congress party’s chances of extending its decade-long rule in national elections due by May.

Gross domestic product rose 4.7 percent in the three months ended Dec. 31 from a year earlier, compared with 4.8 in the previous quarter, the Statistics Ministry in New Delhi said yesterday. That matched the median in a Bloomberg survey.

Reserve Bank of India Governor Raghuram Rajan has raised interest rates three times since taking charge in September, saying curbing inflation is the best way to generate sustained long-term growth. The prospects for a rebound in GDP are likely to depend on whether the elections produce a stable coalition with a clear mandate.

“The underlying trend is still weak, and consumption on the margin is slowing,” said Prasanna Ananthasubramanian, a Mumbai-based economist at ICICI Securities Primary Dealership. “The outlook depends on the outcome of the elections and the continued push for investments.”

Manufacturing output contracted 1.9 percent in the three months ended Dec. 31 from a year earlier, and mining output shrank 1.6 percent, the data showed. Farm output expanded 3.6 percent while financing, insurance and real estate services rose

12.5 percent.

“This is the seventh consecutive quarter of sub 5 percent growth, and the slowdown has become deeply entrenched in the economy,” ICICI Bank’s Kamalika Das said in a note.

Agricultural Slowdown

A deceleration in agricultural growth was a key factor in the overall slowdown in GDP in the quarter, economists at Citigroup said. The 3.6 percent increase in farm output came after a 4.6 percent gain in the quarter before and compared with Citigroup expectations of a reading above 5 percent.

India’s government forecasts the economy will expand 4.9 percent in the fiscal year ending March 31, compared with a decade-low 4.5 percent in the previous year.

That target now appears “challenging” and will require

5.7 percent growth in the current quarter in order to be met, Citigroup’s Rohini Malkani and Anurag Jha wrote.

The rupee strengthened 0.4 percent to 61.7575 per dollar at the close in Mumbai yesterday, while the S&P BSE Sensex share index rose 0.6 percent. The yield on the government bond maturing in November 2023 fell to 8.86 percent from 8.92 percent the previous session. The GDP data were released after the close of trading yesterday.


Opinion polls show Prime Minister Manmohan Singh’s Congress party -- led in the current campaign by Rahul Gandhi -- losing power in the elections. The main opposition Bharatiya Janata Party, led by prime ministerial candidate Narendra Modi, would win 217 of 543 seats up for grabs in the lower house of parliament, falling short of a majority, according to a survey released on Feb. 22 by ABP News television channel and Nielsen.

Rajan raised the benchmark repurchase rate by 25 basis points to 8 percent on Jan. 28. The best way for the central bank to support growth is by bringing inflation down over a “reasonable period of time,” he said on Feb. 26.

Consumer-price gains slowed to 8.79 percent in January from

9.87 percent in December, the fastest among 18 Asia-Pacific economies tracked by Bloomberg, while wholesale-price inflation slowed to 5.05 percent.

A central bank panel in January proposed reducing CPI to 8 percent within one year and 6 percent by 2016, and that the RBI should then adopt a 4 percent target with a band of plus or minus two percentage points.

Budget Deficit

Subdued growth and higher borrowing costs have hurt consumer demand. Sales of cars in an industry that includes Maruti Suzuki India Ltd. contracted 7.6 percent in January from a year earlier, the Society of Indian Automobile Manufacturers said Feb. 11.

Private consumption increased 2.5 percent in the last quarter, yesterday’s data showed. That was a slowdown from 3 percent growth in the preceding quarter and 5.1 percent the year-earlier period.

In his budget presentation on Feb. 17, Finance Minister Palaniappan Chidambaram forecast the budget deficit at 4.6 percent of GDP this fiscal year, compared with an earlier target of 4.8 percent.

“The impending fiscal tightening to meet the deficit target will likely pull down growth” in the current quarter, the last of this fiscal year, HSBC’s Leif Lybecker Eskesen said in an e-mailed note. “Moreover, a relatively high level of corporate leverage and worsening bank asset quality is likely to restrain growth.”

Standard & Poor’s said in November that India could face a downgrade if the election fails to produce a government capable of reviving growth.

“The growth outlook going forward will hinge on the policies of the new government and global growth,” said Indranil Sengupta, an economist in Mumbai at Bank of America Merrill Lynch. “A fragmented election outcome may make it difficult to deliver on fiscal consolidation and boost growth.”

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