MUMBAI, India – India on Friday reported economic growth of 4.7 per cent for the last fiscal year, falling short of the government’s forecast and continuing a trend of sluggish expansion that helped sweep a new government to power this month.
The numbers also showed growth of 4.6 per cent for the January-March quarter. The growth rate for the year that ended March 31 was the second year of sub-5 per cent expansion for Asia’s third-largest economy.
India’s government had projected 2013-14 growth of 4.9 per cent. The government estimates the economy needs to expand at least 8 per cent annually to provide jobs for the millions of young people entering the workforce.
The pro-business Bharatiya Janata Party won elections this month, installing Narendra Modi as prime minister, but it may be another year before any reforms the government pushes take effect, according to Madhavi Arora, an analyst with Kotak Mahindra Bank in Mumbai.
“We are not expecting a huge uptick in the GDP in the next year,” she said.
Complicating matters will likely be a monsoon rains season that is forecast to be lower than normal, dragging down the agriculture sector, she added.
Agriculture expansion was one of the few bright spots in the quarterly numbers, increasing by 6.3 per cent. The lacklustre manufacturing sector contracted by 1.4 per cent.
Just a few years ago, India was touted as a rising economic power that could even outdo China, posting GDP growth of 8-9 per cent annually for a decade.
But both growth and enthusiasm began to fade starting in 2012 as shortages of electricity for industry discouraged investment and the decrepit state of roads and ports hampered trade in goods. A tangled bureaucracy to approve new projects and delays in economic reforms added to the disillusion, while high inflation and weak Indian consumer spending have also hurt the economy.
While India’s has managed to bring down its worrisome fiscal and trade deficits in the last year, it has been unable to spur growth. The country’s high inflation makes it difficult for the central bank to lower interest rates to encourage spending by businesses.
Modi’s new government has promised to create jobs by attracting manufacturing investment and kick-starting stalled infrastructure projects, but Arora said the process would be slow and there is only so much the central government can do, since many of the land acquisition and environmental issues are handled by state governments and not New Delhi.
“Even if the government is able to fast-track projects, they could still get stuck at the state level,” Arora said.