x Abu Dhabi, UAEMonday 22 January 2018

Indian economy 'to get worse'

India's economy grew at its slowest rate in four years, threatening the government's efforts to stop a falling rupee.

The rupee has lost about a third of its value against the US dollar in the past two years. Dhiraj Singh / Bloomberg News
The rupee has lost about a third of its value against the US dollar in the past two years. Dhiraj Singh / Bloomberg News

India's economy grew at its slowest rate in four years, threatening the government's efforts to stop a falling rupee.

GDP expanded at an annual rate of 4.4 per cent from April to June, compared with 4.8 per cent in the previous quarter, the country's statistics ministry said on Friday. The rate missed analyst estimates that averaged 4.7 per cent in a survey by Bloomberg News.

India's record current-account deficit has accelerated the rupee's decline of 16 per cent this year. At Friday's close it was trading at 65.705 to the dollar.

Predictions of an end to monetary stimulus in the United States have also weakened foreign investment not just in India but in other markets like Brazil and Indonesia.

The Federal Reserve has been buying back $85 million of debt a month in an effort to boost capital flows across the globe.

"India's economy was already fragile before the recent rout of the rupee," said the Capital Economics economist Daniel Martin.

"Given the continuing turmoil," he said, "economic conditions look likely to get worse before they get any better."

India's GDP growth could decline to 3.7 per cent for the year ending in March 2014, according to BNP Paribas. Over the past decade the country's economy has expanded at an average rate of 8 per cent a year.

Efforts to bolster the economy and hold up the rupee at the same time have left India's policies at odds. Last month the Reserve Bank of India raised interest rates to halt inflation, a move that also risks economic growth. This week it pledged to supply dollars to top oil buyers.

"The government is going to struggle to turn around the economy until it gets the deficit, consumer-price inflation and the exchange rate under control," said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership in Mumbai. "This may take some time, and growth is at risk in the meantime."

Private consumption growth limped along at 1.6 per cent during the second quarter compared to 3.8 per cent a year earlier, while government spending to prop up the economy jumped by 10.5 per cent.

"The macro-stabilisation process which should support the value of the rupee is under way," Manmohan Singh, the Indian prime minister, told the parliament. "As the fruits of our efforts materialise, currency markets will recover."

Mr Singh predicted growth would pick up in the second half of the year on the back of a strong monsoon's boost to harvests.

In a nod to the country's balance of payments crisis two decades ago, when India had to sell off gold reserves to gain access to IMF loans, the prime minister said there was no reason to believe "1991 is on the horizon".

 

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