x Abu Dhabi, UAETuesday 25 July 2017

Political gridlock tempers India economic growth

India's economy probably expanded less than 5 per cent for a second quarter as political gridlock that threatens prime minister Manmohan Singh's growth agenda tempered gains from farm output and lower interest rates.

India's economy probably expanded less than 5 per cent for a second quarter as political gridlock that threatens prime minister Manmohan Singh's growth agenda tempered gains from farm output and lower interest rates.

Gross domestic product rose 4.8 per cent in January to March from a year earlier, compared with an almost four-year low of 4.5 per cent in the previous quarter, the median of 21 estimates in a Bloomberg News survey shows before data due May 31. The annual average pace in the past decade is about 8 per cent.

Graft scandals have roiled Mr Singh's coalition and disrupted parliament, hurting his efforts to extend an eighth-month policy push that seeks to revive investment. Bills to simplify taxes and liberalize the pensions and insurance industries have stalled, as a record current-account deficit and inflation risks limit the magnitude of monetary stimulus from the central bank.

"It's going to be a very slow pick up in growth," said Sonal Varma, an economist at Nomura Holdings in Mumbai. "External demand still remains weak and I don't think there's any revival so far in the investment cycle. At the margin, interest rates are being cut and the government is announcing some clearance in projects, but these things take time to have an effect."

Farm output helped expansion last quarter, according to Yes Bank and Bank of Baroda, as cooler weather and winter rains aided crops.

The Reserve Bank of India reduced interest rates in January, March and May by a combined 75 basis points to 7.25 per cent as the government pared the budget deficit to tackle inflation. Governor Duvvuri Subbarao signaled after the May 3 cut that the nation has almost no space left to ease monetary policy further.

Wholesale prices rose 4.89 per cent in April from a year earlier, a 41-month low, while the consumer-inflation index climbed 9.39 per cent.

"Regaining the lost glory of 8 per cent growth remains a tall order," said Rupa Rege Nitsure, an economist at Bank of Baroda. "Inflation won't come down if you don't improve supplies and infrastructure. Interest rates won't come down if inflation remains high."

India's estimated 4.8 per cent growth last quarter leaves it trailing China's 7.7 per cent pace, 6.02 per cent in Indonesia and 5.3 per cent in Thailand. Singapore yesterday reported GDP rose an annualized 1.8 per cent in the three months through March from the previous quarter.

Mr Singh is grappling with renewed allegations that he has allowed corruption to fester after separate probes led to the dismissal of the law and railways ministers this month.

Parliament ended two days early in May as opposition parties demanding the men's resignation blocked proceedings. Bills to open up the country's pension and insurance industries to companies abroad are among those that are stalled.

 

* Bloomberg News