India’s growth hits lowest since 2008

MUMBAI - The Associated Press

India’s economic growth slowed to 5.3 percent between January-March, the lowest since 2008, as the malaise in manufacturing and other sectors spread to ordinary Indians, who trimmed spending.

The data, released by the government yesterday, was far worse than expected. Growth for the fiscal year through March was 6.5 percent, less than the Reserve Bank of India’s forecast of 7 percent.

Not so long ago, Indian politicians claimed their economy could rival China’s and surge into double digit growth, lifting millions out of dire poverty in the process.

Instead, India is mired in a deepening crisis of confidence. Asia’s third-largest economy is widely regarded as performing below its potential, but hopes have dimmed that the fractious ruling coalition will be able to push through tough measures that could unlock a rebound.

Yesterday’s data suggest that Indian consumers, hit by stubborn inflation and a gloomy global outlook, have now fallen prey to the malaise.

“It’s beyond anything that we would have imagined,” said Samiran Chakraborty, head of research at Standard Chartered in Mumbai. “It looks to me that the consumption side of the story is now faltering.” Chakraborty blames inflation, which has averaged 9.2 percent since the beginning of 2010.

“Real wages are falling,” he said. “The consumption slowdown along with the investment slowdown has been a double whammy for the GDP number.” Inordinate delays in project approvals, energy supply, labor and land issues, and policy decisions that have frightened foreign investors have all weakened investment. India’s rising deficits and plunging currency - the rupee tumbled to a new lifetime low against the dollar yesterday- haven’t helped either. India’s combined fiscal deficit has more than doubled from 4.1 percent of GDP in fiscal year 2008 to around 9 percent now and the current account deficit is about 4 percent of GDP, prompting Standard & Poor’s to threaten a sovereign downgrade.