NEW DELHI—India's gross domestic product grew at its slowest pace in almost a decade in the January-March period, adding weight to growing evidence the nation's economy is heading into troubled waters.
GDP in the quarter grew 5.3% from a year earlier – its slowest quarterly pace since early 2003. The growth was below economists' forecasts of 6.1% and much lower than levels of over 8% that India has registered in recent years.
For the fiscal year ended March 31, the economy grew 6.5%, below the government's target of 6.9%. Manufacturing output was worst hit in the quarter, contracting 0.3% versus a 7.3% increase in the year-ago period.
The agriculture sector, which employees two-thirds of India's workforce, grew 1.7% versus 7.5% a year ago.India's growth story has turned sour in recent months, due to global economic uncertainties and the government's failure to push through economic reforms to attract foreign investment.
Some Indian business leaders, shocked by Thursday's data, said they felt the country was heading toward the kind of situation last experienced two decades ago, when a severe economic slowdown forced the government to push through major market-opening reforms.
"This shows a grave crisis of investors' confidence," said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry.
"We may be in the danger of slipping into a 1991-like crisis." The economic data pose a dilemma for the Reserve Bank of India, which now is faced with a clamor from businesses demanding rate cuts to kickstart growth.
But the central bank, at its next policy meeting on June 18, must weigh rising fears of slowing growth against the country's failure to get inflation under control. The bank raised interest rates 13 times between 2010 and 2011.
It lowered the policy rate to 8% in April – its first cut in three years -- but warned that it had limited room for further easing due to inflation. Foreign and local companies complain that New Delhi's massive spending on welfare programs, which are politically popular, has created an unsustainable budget deficit and exacerbated inflation.
Massive oil imports have widened the trade deficit, weakening the rupee currency and pushing up the cost of imported goods.Concerns about the twin deficits have scared investors in recent weeks.
The rupee currency touched a fresh record low of 56.51 to the U.S. dollar in Asian trade Thursday, while the Bombay Stock Exchange's 30-stock Sensitive Index fell 93.62 points, or 0.6%, to end at 16218.53 and is off over 6% in the past month.
Prime Minister Manmohan Singh's Congress party-led coalition – in power since 2004 - has largely failed to take politically-difficult actions to cut expenditures. Instead, it attempted earlier this year to raise money through a proposal to retroactively tax acquisitions involving foreign companies – a proposal that has led to complaints from foreign companies.
At the same time, the government has backtracked on promises to open up the local retail sector and other industries to overseas investors, adding to concerns about the business climate. Even where the government has taken limited action to pare the deficit it has faced widespread opposition.
A nationwide business shutdown Thursday to protest last week's 11.5% hike in gasoline prices shows the extent of popular anger at the smallest reforms. The shutdown was organized by the political opposition but also drew support from parties inside Mr. Singh's unruly coalition.
Finance Minister Pranab Mukherjee tried to put a positive spin on the data, saying rates were coming down and the investment climate was improving. He promised that New Delhi would take steps in the months ahead to narrow the budget and trade deficits.
The government is planning to push bureaucrats to cut expenditures on five-star hotels and air travel. A spate of poor corporate results announced Thursday illustrated how high interest rates have begun to hurt companies' earnings.
DLF Ltd., India's largest property developer by sales, said its January to March quarter profit fell 39% from a year earlier as inflation and expensive loans continued to reduce demand for new homes and raised the cost of funds for developers.
DLF said its interest costs rose 32% in the period. Kingfisher Airlines Ltd., founded by flamboyant liquor baron Vijay Mallya, posted a net loss of 11.52 billion rupees ($205 million) for the quarter through March, around three times larger than its net loss a year earlier.
The cash-strapped company, which has defaulted on some payments and canceled flights this year, blames high fuel costs and interest rates for its predicament, as well as a bar on foreign airlines investing in Indian carriers.
Many other Indian airlines are also running at losses due to these factors. GMR Infrastructure Ltd., the company that built the new Terminal 3 at New Delhi's Indira Gandhi International Airport, said Thursday that high borrowing costs were stopping investment in infrastructure projects.
"Whether overseas sovereign funds or even Indian banks, investors are very apprehensive about putting in money into the infrastructure sector," the company's chief financial officer, A. Subba Rao, said in an interview.
"Investors are waiting for changes in fiscal policy before they get back to investing," he added. Christopher Wood, a Hong Kong-based equity strategist with CLSA, said infrastructure investment had ground to a halt because of higher interest rates, power shortages and government corruption. "To get the investment cycle going again requires Delhi to do something," he said.
wsj.com
GDP in the quarter grew 5.3% from a year earlier – its slowest quarterly pace since early 2003. The growth was below economists' forecasts of 6.1% and much lower than levels of over 8% that India has registered in recent years.
For the fiscal year ended March 31, the economy grew 6.5%, below the government's target of 6.9%. Manufacturing output was worst hit in the quarter, contracting 0.3% versus a 7.3% increase in the year-ago period.
The agriculture sector, which employees two-thirds of India's workforce, grew 1.7% versus 7.5% a year ago.India's growth story has turned sour in recent months, due to global economic uncertainties and the government's failure to push through economic reforms to attract foreign investment.
Some Indian business leaders, shocked by Thursday's data, said they felt the country was heading toward the kind of situation last experienced two decades ago, when a severe economic slowdown forced the government to push through major market-opening reforms.
"This shows a grave crisis of investors' confidence," said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry.
"We may be in the danger of slipping into a 1991-like crisis." The economic data pose a dilemma for the Reserve Bank of India, which now is faced with a clamor from businesses demanding rate cuts to kickstart growth.
But the central bank, at its next policy meeting on June 18, must weigh rising fears of slowing growth against the country's failure to get inflation under control. The bank raised interest rates 13 times between 2010 and 2011.
It lowered the policy rate to 8% in April – its first cut in three years -- but warned that it had limited room for further easing due to inflation. Foreign and local companies complain that New Delhi's massive spending on welfare programs, which are politically popular, has created an unsustainable budget deficit and exacerbated inflation.
Massive oil imports have widened the trade deficit, weakening the rupee currency and pushing up the cost of imported goods.Concerns about the twin deficits have scared investors in recent weeks.
The rupee currency touched a fresh record low of 56.51 to the U.S. dollar in Asian trade Thursday, while the Bombay Stock Exchange's 30-stock Sensitive Index fell 93.62 points, or 0.6%, to end at 16218.53 and is off over 6% in the past month.
Prime Minister Manmohan Singh's Congress party-led coalition – in power since 2004 - has largely failed to take politically-difficult actions to cut expenditures. Instead, it attempted earlier this year to raise money through a proposal to retroactively tax acquisitions involving foreign companies – a proposal that has led to complaints from foreign companies.
At the same time, the government has backtracked on promises to open up the local retail sector and other industries to overseas investors, adding to concerns about the business climate. Even where the government has taken limited action to pare the deficit it has faced widespread opposition.
A nationwide business shutdown Thursday to protest last week's 11.5% hike in gasoline prices shows the extent of popular anger at the smallest reforms. The shutdown was organized by the political opposition but also drew support from parties inside Mr. Singh's unruly coalition.
Finance Minister Pranab Mukherjee tried to put a positive spin on the data, saying rates were coming down and the investment climate was improving. He promised that New Delhi would take steps in the months ahead to narrow the budget and trade deficits.
The government is planning to push bureaucrats to cut expenditures on five-star hotels and air travel. A spate of poor corporate results announced Thursday illustrated how high interest rates have begun to hurt companies' earnings.
DLF Ltd., India's largest property developer by sales, said its January to March quarter profit fell 39% from a year earlier as inflation and expensive loans continued to reduce demand for new homes and raised the cost of funds for developers.
DLF said its interest costs rose 32% in the period. Kingfisher Airlines Ltd., founded by flamboyant liquor baron Vijay Mallya, posted a net loss of 11.52 billion rupees ($205 million) for the quarter through March, around three times larger than its net loss a year earlier.
The cash-strapped company, which has defaulted on some payments and canceled flights this year, blames high fuel costs and interest rates for its predicament, as well as a bar on foreign airlines investing in Indian carriers.
Many other Indian airlines are also running at losses due to these factors. GMR Infrastructure Ltd., the company that built the new Terminal 3 at New Delhi's Indira Gandhi International Airport, said Thursday that high borrowing costs were stopping investment in infrastructure projects.
"Whether overseas sovereign funds or even Indian banks, investors are very apprehensive about putting in money into the infrastructure sector," the company's chief financial officer, A. Subba Rao, said in an interview.
"Investors are waiting for changes in fiscal policy before they get back to investing," he added. Christopher Wood, a Hong Kong-based equity strategist with CLSA, said infrastructure investment had ground to a halt because of higher interest rates, power shortages and government corruption. "To get the investment cycle going again requires Delhi to do something," he said.
wsj.com
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