MUMBAI, India – India’s economic growth slowed to 5.3 per cent in the January-March quarter, the lowest since 2008, as the malaise in manufacturing and other sectors spread to ordinary Indians, who trimmed spending.
The data, released by the government Thursday, was far worse than expected. Growth for the fiscal year through March was 6.5 per cent — less than the Reserve Bank of India’s forecast of 7.0 per cent.
Not so long ago, Indian politicians claimed their economy could rival China’s and surge into double digit growth, lifting hundreds of millions out of dire poverty in the process.
Instead, India is mired in a deepening crisis of confidence. Asia’s third-largest economy is widely regarded as performing below its potential, but hopes have dimmed that the fractious ruling coalition will be able to push through tough measures that could unlock a rebound.
Thursday’s data suggest that Indian consumers, hit by stubborn inflation and a gloomy global outlook, have now fallen prey to the general malaise.
“It’s beyond anything that we would have imagined,” said Samiran Chakraborty, head of research at Standard Chartered in Mumbai. “It looks to me that the consumption side of the story is now faltering.”
Chakraborty blames inflation, which has averaged 9.2 per cent since the beginning of 2010.
“Real wages are falling,” he said. “The consumption slowdown along with the investment slowdown has been a double whammy for the GDP number.”
Inordinate delays in project approvals, energy supply, labour and land issues, and policy decisions that have frightened foreign investors have all weakened investment. India’s rising deficits and plunging currency — the rupee tumbled to a new lifetime low against the dollar Thursday — haven’t helped either.
India’s combined fiscal deficit has more than doubled from 4.1 per cent of GDP in fiscal year 2008 to around 9 per cent now and the current account deficit is about 4 per cent of GDP, prompting Standard & Poor’s to threaten a sovereign downgrade.
Manufacturing, a key source of jobs, fell 0.3 per cent in the March quarter from a year earlier.
“India’s growth story has clearly derated,” said Citigroup economist Rohini Malkani, before the data came out. “A lot of it has been self-inflicted.”
“There’s no easy way out,” Malkani said. “India clearly needs a fair amount of luck in terms of oil prices and capital flows.”
The Reserve Bank of India and the International Monetary Fund, among others, have been urging the government to enact long-promised reforms that would kickstart growth and stimulate investment.
A nationwide strike Thursday, organized by opposition political parties to protest a recent hike in gasoline prices underlined the difficulty of economic reform.
Economists had cheered the hike as a step toward controlling India’s fiscal deficit. The 11 per cent increase was the steepest rise in a decade.
Opposition parties, however, are demanding that the government roll back the increase to check inflation, dimming hopes that New Delhi will be able to trim other subsidies, such as diesel, which would do far more to balance the budget.
In the financial capital Mumbai, residents, especially in the working class suburbs, stayed home, afraid of violence. Many shops were shuttered. Mobs attacked public buses, throwing stones, smashing windscreens and puncturing their tires.
Trains, the lifeblood of the city, were unusually empty and Mumbai’s normally gridlocked roads were eerily clear during morning rush hour.