NEW DELHI: India’s economy grew by 4.4 percent in the first three months of the fiscal year, the slowest quarterly expansion since 2009, data yesterday showed, deepening the challenge facing policymakers to arrest a sliding rupee.
Analysts blamed slumping investment, stubbornly elevated inflation, high interest rates and muted export demand for the grim performance, which undershot market expectations of 4.7 percent year-on-year growth in the first financial quarter.
“India’s economy was already fragile before the recent rout of the rupee. Given the ongoing turmoil, economic conditions look likely to get worse before they get any better,” said Capital Economics economist Daniel Martin.
India has been battling to restore investor confidence in its once-booming economy and boost the value of the rupee, which has hit a string of lifetime lows against the dollar, slumping 16 percent so far against the US currency this year.
The April-June growth, which was slower than the 4.8 percent expansion logged in the previous three months, marked the third straight quarter of below five percent growth — and was less than half the double-digit level economists say is needed to reduce widespread poverty.
“The concern on the economy can hardly be overstated — the economy needs the undivided attention of policymakers,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.
The Indian currency gained 1.5 percent to Rs65.70 to the dollar, bolstered by reported heavy central bank intervention, while shares closed up 1.2 percent at 18,619 points on investor blue-chip bargain-hunting.
But the weak growth was seen as amplifying negative sentiment toward the rupee, whose tumble has come on the back of a record current-account deficit — the widest measure of trade—that has alarmed foreign investors and spurred a capital flight.
The funds exodus has also been greased by an expected end to US monetary stimulus which sparked investment flows to emerging markets.India, like many emerging markets, depends heavily on foreign capital inflows to fund its balance of payments.
India’s central bank raised short-term interest rates last month to bolster the currency, but high interest rates are seen as discouraging vital investment and delaying any economic upturn.
The growth numbers underscored difficulties ahead for incoming Reserve Bank of India governor Raghuram Rajan, who takes the reins of the central bank next week. “Rajan will certainly have his work cut out for him,” said Anjalika Bardalai, analyst at research house Eurasia Group.
“The bank is having to bear the brunt of policy management, given the fact the government is still more or less paralysed because of partisan politics in the run-up to the general election next year,” she added.
The growth data showed widespread weakness with manufacturing contracting by 1.2 percent and services and construction output slowing.
The quarterly growth was the most sluggish since early 2009, when India and the rest of the world were staggering from the onset of the global financial crisis.