INDIA’S economy logged around 5.5 per cent growth in the last financial quarter, the finance minister estimated on Saturday (November 24) – a rate that could boost calls for lower interest rates to spur activity.
India’s once-booming economy has been hit by high interest rates, Europe’s debt crisis that has slowed exports, and sluggish investment caused by domestic and overseas concerns about policy and corruption.
Chidambaram said in televised remarks in Pune that he expected official data to be released next Friday (November 30) to show that the economy grew by “around 5.5 per cent” in the three months to September 30.
That would be down from 6.9 per cent in the same second-quarter period a year earlier.
“It goes without saying that we face a difficult situation,” Chidambaram said at a bankers’ conference, adding the “global economy is still in crisis”.
India’s economy was growing by more than eight per cent before 2011-12. But it has been performing increasingly worse with the Congress-led government of Prime Minister Dr Manmohan widely criticised for its handling of the situation.
Even though 5.5-per cent growth would be the envy of much of the world, it is not enough for India, which has been aiming for close to double-digit expansion to substantially reduce crushing poverty.
“For us eight per cent growth is not an aspiration but a necessity. India cannot afford to grow below eight per cent,” Chidambaram said.
The slow growth comes at a time when it is more difficult for the Indian government to pep up the economy than in the 2008-09 financial crisis.
Then, the government had more fiscal room to stimulate the economy but now it is struggling to cut a widening budget deficit and avert a downgrade of its sovereign debt to “junk” status by global credit ratings agencies.
In addition, the central bank has been keeping interest rates high to combat stubbornly high inflation.
Inflation eased marginally in October to 7.45 per cent year-on-year, but economists said the level is still too high to permit the bank to lower rates.
Indian businesses have been calling for lower rates, saying the slowdown is in large part due to high borrowing costs that have curbed consumer spending.
Chidambaram said India must boost growth “through innovation, through finding ways of increasing the production of goods and services”.
The government recently introduced a blitz of liberalisation measures to spur the economy – including opening the door wider for foreign investors in the retail and aviation sectors.
But the pro-market reforms have stirred huge political controversy, paralysing parliament which resumed sitting on Thursday (November 22).
Opponents have billed the measures as anti-poor, saying they pander to large foreign corporations, and have demanded they be submitted to parliament for discussion.
The weak growth comes as the government, which has also been buffeted by a slew of corruption scandals, gears up for elections due in less than 18 months.
