02 March 2012

GDP Growth @ 6.1%

At 6.1%, economic growth hits 3-year low
Manufacturing, mining sectors drag; pressure may mount on RBI to cut rates

The Indian economy grew at the slowest annual pace in almost three years in the October-December quarter at 6.1 per cent, adding pressure on the Reserve Bank of India to go in for a cut in the Repo rate at the policy review meeting slated for March 15. The repo rate is the rate at which the RBI lends money to banks.
The third quarter GDP growth of 6.1 per cent compared poorly with the 8.3 per cent growth recorded in same quarter the previous year, and was also lower than the 6.9 per cent of Q2. The growth performance of the latest October-December quarter was weighed down by the sharp fall in manufacturing sector growth and a contraction in mining.
India's manufacturing sector grew just 0.4 per cent in the third quarter as higher input prices and the sharp jump in borrowing costs depressed output. The sector had recorded a robust 7.8 per cent growth in the same quarter the previous year.
The mining sector recorded a contraction of 3.1 per cent in October-December 2011 compared with the 6.1 per cent growth in same previous period. This is the second consecutive quarter the sector recorded a contraction. Agriculture recorded growth of 2.7 per cent, far lower than the 11 per cent in same quarter last year, official data released by the Central Statistics Office showed.
The latest growth data highlighting the faltering economy are likely to pose more problems for the UPA Government, already buffeted by a string of corruption scandals. Weaker-than-expected growth would also imply lower tax revenues for the Government in the current fiscal. Rising oil prices coupled with lower tax revenues may increase the country's economic pain in the months ahead, say economy watchers and analysts.
The data also reveal that gross fixed capital formation continues to shrink, indicating a bleak investment outlook, according to the Confederation of Indian Industry Director-General, Mr Chandrajit Banerjee. Industry has reiterated its demand that excise duty should not be raised in the current economic situation.
The RBI had last month indicated it was ready to cut interest rates to stimulate the economy. Bankers are betting that the RBI will go in for only a cut in the Cash Reserve Ratio on March 15. A CRR cut seems to be appropriate to infuse liquidity into system, Mr M.V. Nair, CMD of Union Bank, said.
Source : Business Line

1 comment:

  1. Nice post. Report says that the growth rate of 6.9% is lowest after the year 2008. This is because of the fall in manufacturing sector.

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