Disappointment as India’s 7 per cent growth reveals slowdown

India’s economy grew at 7 per cent from April to June, a figure which disappointed after predictions of a higher rate of expansion.

The second quarter showed a slowdown compared to GDP growth of 7.5 per cent between January and March, according to government data released yesterday.

Analysts polled expected growth for the quarter to come in at 7.4 per cent, but a weak showing from the services sector acted as a brake on Asia’s third-largest economy.

The latest figures put India on a par with China, which also reported growth of 7 per cent for the period, although some economists have questioned the reliability of China’s reported growth rate.

There have also been doubts surrounding India’s data. Questions have been raised about the methodology of calculating India’s GDP, which was changed this year, resulting in significantly higher figures.

“The GDP data remain inconsistent with numerous other indicators, which suggest that, at best, the economy is in the early stages of recovery after three years of tepid growth,” said Shilan Shah, the India economist at Capital Economics.

Devendra Kumar Pant, the chief economist at India Ratings and Research in Mubai, which is part of Fitch Group, said that lower growth could partly be attributed to “weak global demand”.

The IMF has predicted that India will overtake China to become the world’s fastest growing major economy this year. While the Reserve Bank of India (RBI) has predicted GDP growth of 7.6 per cent in the current financial year, which runs from April until the end of March, the consensus is that India needs economic growth of at least 8 per cent to support and create enough jobs for its population of more than 1.2 billion.

India’s prime minister Narendra Modi has come under pressure to deliver on promises that he would boost India’s economy after he came to power last year.

Some have criticised the pace of reform, while a weak monsoon season this year is also weighing on sentiment as it affects the agricultural sector and, in turn, consumer spending.

The latest GDP data, together with a fall in the consumer price index (CPI) in July, “increases the probability” of an interest-rate cut by the RBI his month, said K Sandeep Nayak, the executive director and chief executive of Centrum Broking, based in Mumbai.

“However, a 7 per cent growth is still the fast lane in comparison to the growth rates being achieved in other comparable economies of the world or for that matter the developed world,” he said.

But Mr Shah said that, following the government’s change in the way it calculates GDP, “more clarity needs to be given … to help us gauge how well the economy is doing in a historical context”.

He said: “The statistics office has suggested that we won’t get this until December at the earliest. ntil this happens, economists and policymakers alike will be looking beyond the GDP data.”


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