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India predicts growth will fall to six-year low

feature_recession3Published: January 27 2009 02:00 | Last updated: January 27 2009 02:00

India’s central bank warned yesterday that the country’s economy would grow this fiscal year at its slowest rate since 2003, as the global economic malaise spreads to large emerging markets that had hoped to escape the worst of the crisis.

The Reserve Bank of India cited the median estimates of institutions such as the World Bank and Citigroup that showed growth in the world’s second-fastestexpanding emerging economy would slow to 6.8 per cent, down from earlier forecasts of 7.7 per cent. This would therefore be the slowest rate of growth since 2003 – when India’s gross domestic product expanded 3.8 per cent – and would end a three-year period in which the economy grew at least 9 per cent annually.

“The balance of risks on the growth outlook is tilted towards the downside,” the RBI said in its review of the economy for India’s fiscal third quarter ending in December.

The rapid decline in expectations for growth in India will place added pressure on the RBI to lower its key interest rate from the present level of 5.5 per cent when it presents its quarterly monetary policy announcement today.

While the news is nowhere near as dark as in developed nations, many of which are already in recession, the RBI said there had been a rapid slowdown in industrial activity and exports in the third quarter, which would be matched by a decline in the service sector.

“For the first time in seven years, exports have declined in absolute terms in October and November 2008,” the RBI said. But the RBI also said the economy would receive some support from government tax breaks and civil service pay rises, along with a loan waiver for farmers that would increase the disposable income of the country’s rural majority. A fall in commodity prices – particularly oil, of which India imports more than 70 per cent of its requirements – would also ease inflationary pressures.

Inflation has fallen from 12.9 per cent in the middle of the year to 5.6 per cent, giving the RBI ample room to ease monetary policy.

Dharmakirti Joshi, principal economist with Crisil, the Indian rating agency affiliated with Standard & Poor’s, said another positive was that the country’s financial sector remained in reasonable health.

“Even if you grow 6.5 per cent to 6 per cent this year and 5 per cent to 5.5 per cent next year, that is reasonably good,” Mr Joshi said.

But other economists warned that India’s demographic make-up, with a large young population in need of employment, meant it could not tolerate lower rates of growth for too long.

“While growth estimates may appear high relative to those of developed economies, given India’s demographic changes, the pressure on employment, confidence and price levels would be more burdensome than the past,” said Rohini Malkani, Citigroup India economist.

But she added that monetary policy measures and lower commodity prices should set the stage for an Indian economic recovery in the fiscal year ending on March 31, 2011.

By Joe Leahy in Mumbai

January 27, 2009 - Posted by | Economic Trends

1 Comment »

  1. thanx for the information…

    Comment by dailyearthnews | January 27, 2009 | Reply

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