India's annual economic growth slumped in the January-March quarter to a nine-year low of 5.3% as the manufacturing sector shrank and a fall in the rupee to a record low suggests the economy remains under pressure in the current quarter.
2. Growth below
expectation
India's economy grew at an annual rate
of 5.3 % in the quarter ended March
2012, much lower than expectations of
6.1 %
The GDP numbers mean that the
country’s growth slowed for eight
successive quarters through the three
months ended March 2012.
3. Weakest fiscal performance
in 9 years
India’s growth rose 6.5% in the fiscal year
to the end of March 2012. This is the
lowest growth rate since 2002-03 when
it fell to 4% in the wake of a global
slowdown. It is also a sharp slowdown
from the previous fiscal’s 8.4 %.
4. Why did Sensex, Nifty
fall?
The BSE Sensex hit the lowest point of the
day after data indicated that the Indian
economy grew at a slower than
expected pace in the March quarter.
The fall in Sensex and Nifty indicates that
investors expect corporate profits to dip
going forward.
5. Agriculture growth
falters
The farm sector, which is the single largest
employer in the country but one of the
lowest contributors to absolute GDP,
grew at a measly 1.7 % against 7.5 % in
the corresponding period last fiscal
Poor agriculture growth means rural
consumers would have less money to
spend going forward.
6. Manufacturing and services
struggle
A key drag on growth numbers were the
industry and services sectors -- both key
drivers of growth -- which came in lower
than expected, at 1.9 and 7.9 per cent
against 7 and 10.6 per cent in the year-
ago period. The manufacturing sector
contracted (-) 0.3 per cent from 7.3 per
cent in the same period last fiscal.
7. Exports hurt
The corporate sector has witnessed its worst
slowdown in recent times. Confidence and
demand have been weighed down by
higher interest rates, a challenging export
environment, and, perhaps most important,
policy mismanagement and political
deadlock, according to Moody’s Analytics.
A sluggish global economy has also cut
demand for India's goods overseas,
despite the falling rupee, which means
exports may also not grow enough to
compensate for the domestic weakness.
8. Expect fewer jobs
The ability of companies to create jobs is
hurt during a successive slowdown in
the GDP growth rate. Company could
conserve cash and put expansion on
hold as a result of weak growth
prospects going forward. Lower
investment is also partially a fallout of a
high interest regime to keep inflation in
check.
9. No scope for economic
stimulus
The current account deficit is the highest
since 1980. This occurs when a country
imports more than it exports. Costly
subsidies have pushed the fiscal deficit to
5.9 per cent from a target of 4.6 per cent of
GDP in the fiscal year that ended in March
2012. This leaves little headroom for any
fiscal stimulus. The surging budget deficit
means the government cannot provide for
any tax related incentives to stimulate
growth.
10. RBI cannot stimulate the
economy either
A sharp 25 per cent drop in the rupee over
the past 9 months could hurt RBI’s
ability to cut interest rates because
doing so could increase inflationary
pressure. There can be no growth
stimulus from RBI through a lower
borrowing cost as it battles stubbornly
high inflation.
11. No option but to reform
The government needs to cut subsidies on
fuel, fertilizer and food.
The government must push fiscal
consolidation to help reduce inflation
and the current account deficit
12. Eurozone crisis impacted Indian
economy
"Global slowdown due to unfolding of
eurozone sovereign debt crisis has,
inter-alia, impacted the Indian economy
through deceleration in exports,
widening of trade and current account
deficit, decline in capital flows, fall in the
value of Indian Rupee, stock market
decline and lower economic growth,"
Finance Minister Pranab Mukherjee said
in a written reply to the Rajya Sabha.