India's Economic Growth Slowest Since 2009

India’s economy grew at the slowest pace in five quarters as manufacturing and services cooled.

Gross domestic product rose 7.8% in the three months ended March 31 from a year earlier, after a revised 8.3% gain in the previous quarter. That’s the slowest pace in five quarters. 

India’s inflation rate is the fastest after Russia among major emerging economies, and the Reserve Bank of India this month signaled further tightening as it raised rates for the ninth time since March 2010. 

During the quarter ending March 31 this year, growth in the manufacturing sector slowed down to 5.5 % from 15.2 % in the same quarter of 2009-10.

In addition, the mining and quarrying sector grew by only 1.7% during the quarter under review, as against 8.9 % in the fourth quarter of the previous fiscal.

Furthermore, the trade, hotels, transport and communications segment grew by 9.3% in the March quarter this year, as against 13.7% expansion in the same the period of 2010.

However, services including banking and insurance grew by 9% in the March quarter this year, compared to 6.3% in the corresponding period last year.

Farm output showed tremendous improvement, growing at 7.5 % during the quarter under review, compared to a meager 1.1% in the same three-month period last year.

Though economic expansion slowed down in the fourth quarter, overall GDP growth touched the 8.5 % mark in 2010-11, as against 8 % in 2009-10, due the smart recovery in farm output.

The agriculture and allied sectors grew by 6.6% during the fiscal, as against a meager 0.4% in the previous year.

The growth of services, including banking and insurance, improved to 9.9% in 2010-11 from 9.2% in the previous fiscal.

The trade, hotels, transport and communication segment grew by 10.3% in FY'11, as against 9.7% last fiscal, while growth of the construction sector stood at 8.1%, as against 7% in the previous financial year.

Growth of the mining and quarrying sector also slowed to 5.8% in 2010-11 from 6.9% in 2009-10.

The electricity, gas and water supply segment grew by 5.7% last fiscal, compared to 6.4% in 2009-10.

In China, the central bank has increased rates four times since mid-October. The Bank of Korea held off from boosting borrowing costs for two months after increases of a quarter point each in January and March.

India’s economic expansion is still the quickest after China among major economies, bolstered by higher earnings among the nation’s 1.2 billion people.

Consumer demand in India may wane under the impact of higher rates.

Sales at Maruti Suzuki rose 4.4% in April, the least in 28 months. Home-sale registrations in Mumbai fell 30 % in April from a year earlier, dropping to a 23-month low.

High prices are pinching consumers, who are increasingly complaining of raging inflation, which has forced them to put off non-essential purchases.

Asia’s third-largest economy may grow 8.2% in 2011 from 10.4% in the prior 12 months, the IMF said. Goldman Sachs cut its estimate for gross domestic product expansion in India to 7.8% from 8.7% for the fiscal year ending March 31, 2012, while Credit Suisse lowered it to 7.5% from 7.7%.

Growth is expected to moderate further because of rising crude oil prices as well as a sustained increase in interest rates that has forced companies to delay their expansion plans. An uncertain growth outlook in advanced economies, especially in Europe, is also clouding growth prospects in Asia's third-largest economy.