Shashikant S Kulkarnishashi1605@gmail.com

Growth below expectation India's economy grew at an annual rate

of 5.3 % in the quarter ended March 2012, much lower than expectations of 6.1 %

The GDP numbers mean that the country’s growth slowed for eight successive quarters through the three months ended March 2012. 

Weakest fiscal performance in 9 yearsIndia’s growth rose 6.5% in the fiscal year

to the end of March 2012. This is the lowest growth rate since 2002-03 when it fell to 4% in the wake of a global slowdown. It is also a sharp slowdown from the previous fiscal’s 8.4 %.

Why did Sensex, Nifty fall?The BSE Sensex hit the lowest point of the

day after data indicated that the Indian economy grew at a slower than expected pace in the March quarter. 

The fall in Sensex and Nifty indicates that investors expect corporate profits to dip going forward.

Agriculture growth faltersThe farm sector, which is the single largest

employer in the country but one of the lowest contributors to absolute GDP, grew at a measly 1.7 % against 7.5 % in the corresponding period last fiscal

Poor agriculture growth means rural consumers would have less money to spend going forward.

Manufacturing and services struggleA key drag on growth numbers were the

industry and services sectors -- both key drivers of growth -- which came in lower than expected, at 1.9 and 7.9 per cent against 7 and 10.6 per cent in the year-ago period. The manufacturing sector contracted (-) 0.3 per cent from 7.3 per cent in the same period last fiscal.

Exports hurtThe corporate sector has witnessed its worst

slowdown in recent times. Confidence and demand have been weighed down by higher interest rates, a challenging export environment, and, perhaps most important, policy mismanagement and political deadlock, according to Moody’s Analytics. A sluggish global economy has also cut demand for India's goods overseas, despite the falling rupee, which means exports may also not grow enough to compensate for the domestic weakness.

Expect fewer jobs

The ability of companies to create jobs is hurt during a successive slowdown in the GDP growth rate. Company could conserve cash and put expansion on hold as a result of weak growth prospects going forward. Lower investment is also partially a fallout of a high interest regime to keep inflation in check.

No scope for economic stimulusThe current account deficit is the highest

since 1980. This occurs when a country imports more than it exports. Costly subsidies have pushed the fiscal deficit to 5.9 per cent from a target of 4.6 per cent of GDP in the fiscal year that ended in March 2012. This leaves little headroom for any fiscal stimulus. The surging budget deficit means the government cannot provide for any tax related incentives to stimulate growth.

RBI cannot stimulate the economy eitherA sharp 25 per cent drop in the rupee over

the past 9 months could hurt RBI’s ability to cut interest rates because doing so could increase inflationary pressure. There can be no growth stimulus from RBI through a lower borrowing cost as it battles stubbornly high inflation.

No option but to reformThe government needs to cut subsidies on

fuel, fertilizer and food.

The government must push fiscal consolidation to help reduce inflation and the current account deficit

Eurozone crisis impacted Indian economy

"Global slowdown due to unfolding of eurozone sovereign debt crisis has, inter-alia, impacted the Indian economy through deceleration in exports, widening of trade and current account deficit, decline in capital flows, fall in the value of Indian Rupee, stock market decline and lower economic growth," Finance Minister Pranab Mukherjee said in a written reply to the Rajya Sabha.

References

http://profit.ndtv.com

http://www.indianexpress.com