India is expected to announce economic growth for the first quarter of 2012 of around 6.1 per cent, a near three-year low likely to increase the gloom shrouding the country.
There is “extreme pessimism” about India’s prospects, said Dariusz Kowalczyk, senior economist at Credit Agricole, ahead of the figures for the January-March quarter due at 0530 GMT (1330 AEST) on Thursday.
“Fundamentals are indeed weak with slower growth, elevated inflation and the highest deficit-to-GDP (gross domestic product) ratios in Asia,” he said on Wednesday, forecasting growth may stay below seven per cent until after the next general elections in 2014.
According to a poll of analysts by Dow Jones Newswires, Asia’s third-largest economy probably grew by 6.1 per cent in the three months to March, its lowest level since the quarter to June 2009 when it grew by the same pace.
The sluggish figures are expected to keep up pressure on India’s currency which closed at a new record low of 56.24 rupees to the dollar on Wednesday with some analysts forecasting it could drop to as low as 60 rupees if weak growth persists.
Data this month showed industrial production contracted 3.5 per cent in March from a year earlier after expanding a modest 4.1 per cent in February, reflecting the effect of high interest rates and a faltering world economy.
“The slowdown has been most pronounced in India’s industrial sector,” said Glenn Levine, senior economist at Moody’s Analytics, a ratings agency.
For the fiscal year to March 2012, analysts predict the Indian economy expanded by around 6.7 per cent — lower than the government’s estimate of 6.9 per cent and far below the 8.4 per cent of the previous year.
While six per cent growth would be the envy of much of the world, at least nine to 10 per cent expansion is needed to reduce India’s widespread poverty, experts say.
China has also recently released a slew of bleak data, fuelling fears its economy is also cooling faster than expected.
Hopes the two emerging market giants could underpin global recovery have been steadily dashed by their weakening performances.
With the weak rupee expected to stoke inflation — already above seven per cent — the Indian central bank’s ability to stimulate the economy by rolling back an aggressive string of interest rate hikes has been sharply curbed.
The growth figures are being announced after Prime Minister Manmohan Singh admitted his squabbling Congress-led coalition must do more to get the once red-hot economy moving again.
“We need to do better,” the 79-year-old leader said as he presented his government’s annual report card last week.
Singh is credited with opening up India’s economy when he was the finance minister in 1991 but his premiership has been tainted by a series of policy U-turns and corruption scandals.
His once ambitious reform agenda has stalled amid coalition infighting, and the economic climate has been further strained by the announcement of new tax policies seen as hostile to foreign investment.
India’s economy is suffering from “policy incoherence, shifting global risk appetite and a comatose government”, said Rajeev Malik, senior economist at brokerage CLSA.
