India Grows Slower Than Estimated, Boosting Pressure on Modi

Central Banks Did What They Could: Rajan
  • India now on par with China as fastest-growing major economies
  • Gross Value Added rises 7.1% y/y vs. 6.9% median est.

India’s GDP grew slower than estimated, boosting pressure on Prime Minister Narendra Modi to make more progress in overhauling Asia’s third-largest economy.

Gross domestic product rose 7 percent April-June from a year earlier, after a 7.5 percent expansion the previous quarter, the Central Statistics Office said in a statement in New Delhi on Monday. The median of 31 economist estimates in a Bloomberg survey was 7.4 percent.

While India is expanding at a faster pace than other major world economies, Modi’s government has said it can do better. India’s currency and stocks plummeted last week along with other emerging markets on concerns that China’s slowdown would be worse than anticipated as the Federal Reserve prepares to raise interest rates.

The figure adds pressure on Modi to press ahead with far-reaching changes to the economy. This week he stepped back from land reforms after opposition from farmers, and proposals to overhaul labor laws and implement a national goods-and-services sales tax face delays.

“Overall the message is that growth is still weak,” said Prasanna Ananthasubramanian, chief economist at ICICI Securities Primary Dealership in Mumbai. Expansion will gradually pick up in the coming quarters led by government spending, he said.

The benchmark stock index, which rallied 30 percent in 2014 when Modi swept to power, has since fallen 4.4 percent. The rupee weakened the most in two years this month amid an emerging market rout sparked by China’s yuan devaluation. The currency erased Monday’s gains in the offshore non-deliverable market after the GDP data.

Central bank Governor Raghuram Rajan left one of Asia’s highest borrowing costs unchanged after an Aug. 4 review, and called for fiscal and regulatory reforms to spur growth. The Reserve Bank of India retained its growth forecast for gross value added -- a component of GDP it closely watches -- at 7.6 percent for the year through March 2016. In June it had lowered the prediction from 7.8 percent.

India’s GVA rose 7.1 percent April-June from a year earlier, compared with a 6.9 percent median estimate.

India’s outlook is relatively good. Asia’s third-biggest economy will expand 7.5 percent in the current year, compared with China’s 6.8 percent, an average 4.2 percent for emerging markets and 3.3 percent for advanced nations, the International Monetary Fund forecast in July. 

India had overtaken China as the world’s fastest growing major economy in the January-March quarter, expanding 7.5 percent compared with its larger rival’s 7 percent increase.

"Compared to what is happening globally, India is on a healthier trajectory," said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai.

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