Indian economic growth slows in Q2

| August 30, 2011

According to the finance ministry, India’s economy expanded by 7.7% in the April to June period – much slower than the 8.8% growth in the same period a year earlier.

It was the weakest growth in six quarters and was attributed to a slowdown in construction activity.

Construction saw an increase of just 1.2% during the three-month period - compared with 7.7% in the same period a year earlier.

Meanwhile, manufacturing grew 7.2% against an increase of 10.6% a year earlier, while mining and quarrying slowed to 1.8% from 7.4% on an annual basis.

However, the GDP figure for the second quarter was slightly better than economists had expected and India is still the world’s second fastest growing major economy after China.

Meanwhile, the slowdown is expected to continue as the economy, which is Asia’s third largest, continues to battle with stubbornly high inflation.

Consumer prices in India rose to 9.44% last month – the highest among the Group of 20 leading nations – as food and fuel costs continued to surge.

Annual food inflation has surged, causing major problems for the 450 million people who live below the poverty line in the country.

Prime Minister Manmohan Singh has previously said inflation is a “serious threat” to the country’s growth.

Last month, the Reserve Bank of India (RBI) raised key interest rates for the eleventh time since March 2010, in a bid to tame inflation in a thriving economy.

Many economists are anticipating another rise in interest rates next month.

As a result of higher inflation, the country recently lowered its growth forecast for the current fiscal year to March 2012 to 8.2% from 9%.

Investment bank Morgan Stanley recently slashed India’s growth forecast for the fiscal year to 7.2% from 8.8%, while Goldman Sachs recently said growth will be around 7.2%, revised downwards from 8%.

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