India's economic growth sags to 6.1 percent

AP News
Posted: Feb 29, 2012 6:55 AM
India's economic growth sags to 6.1 percent

India's economy grew at its slowest pace in over two years in the December quarter, adding to pressure on the central bank to lower interest rates even as inflation remains high.

The 6.1 percent growth reported Wednesday marks a sharp slowdown from a 6.9 percent expansion in the July-September quarter. India's benchmark stock index was up 0.2 percent amid gains in other Asian markets.

High interest rates, rising production costs, stalled investment, policy paralysis and corruption scandals have all taken a toll on Asia's third largest economy.

Agriculture grew 2.7 percent in the October-December quarter from a year earlier, mining fell 3.1 percent and manufacturing eked out a 0.4 percent rise.

Indian policy makers have struggled with a toxic combination of high inflation and slowing growth. The central bank hiked interest rates 13 times before pausing in October and has urged New Delhi to unblock supply constraints to help fight inflation and better balance the budget, which will be presented in March.

The government now says the economy will likely grow around 7 percent for the year ending March, down from earlier expectations of 9 percent.

"This is a weak result for India, which has a potential GDP growth rate around 7 percent," said Glenn Levine, a senior economist at Moody's Analytics.

He said the fall in fixed investment was "most disappointing," as it reflected declining business confidence and higher interest rates. On the bright side, private consumption continued to grow, a reflection of India's rising middle class, he said.

"The economy has slowed in the face of weaker external demand, rising global uncertainty, elevated interest rates, high inflation, a stagnant government, and declining business confidence," he said.

"This will cap growth in 2012, especially through the first half where GDP growth is likely to dip below 6 percent before lower interest rates and a global recovery lift growth through the second half."