18.6.11

Mid-summer blues

The economy is slowly losing pace and growth is expected to moderate to about 8% this year. Policymakers have now scaled back their exuberance and estimate growth in the 8-8.5% range, far below the double-digit growth talk, which was fuelled by rapid economic expansion in the past few years. After a smart recovery from the impact of the global financial crisis, Asia’s third-largest economy is fighting a battle to tame inflation, which has emerged as a policy headache. Higher borrowing costs have piled pressure on the budgets of borrowers, while stubbornly high inflation has forced consumers to postpone their purchasing decisions. Slowing down of growth could not just upset public finances as the clamour for more subsides rises but also affect job creation and your hike next year as companies are fighting to maintain profitability at a time when the price of oil and other inputs have shot up. But economists say it may not be time to press the panic button yet. Most experts expect the slowing trend to persist for some time as the RBI further tightens policy in the months ahead. Latest data shows that inflation rose to 9.06% in May but the worry is that the economy may have to live with double-digit inflation for some time to come, considering the sharp revisions of the previous inflation data. The industrial sector too is witnessing sluggishness. Latest data showed industrial growth slowed to a three-month low of 6.3% and all indicators show that rising input costs are taking a toll. Agriculture , which accounts for 15% of the GDP has rebounded but unless strong and urgent reform measures are initiated the good news is expected to be short-lived. The services sector, which accounts for over 53% of the $1.3 trillion economy, is also witnessing a moderation, thanks to fragile recovery in the global economy but experts expect the sector to sustain its growth. Exports, which recorded a scorching growth of 57% in May, are unlikely to sustain the momentum as the country's traditional markets face a slowdown and could therefore emerge as a potential pressure point for the Indian economy. Most experts say growth will continue to face headwinds unless the government steps up reforms.

GDP growth
Jan-Mar 2010 9.4%
Apr-June 2010 9.3%
Jul-Sept 2010 8.9%
Oct-Dec 2010 8.3%
Jan-Mar 2011 7.8%

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