India’s economic growth slid to 5.3 percent in the September quarter, stuck at its lowest level in three years as New Delhi struggles to enact reforms to kick-start Asia’s third-largest economy.
The figures released yesterday by the government were in line with expectations that the second quarter of the fiscal year was lackluster.
A weakening economy complicates New Delhi’s effort to create jobs for its exploding youth population and balance the budget, while paying for costly social programs in advance of national elections scheduled for 2014.
India is struggling with high inflation and high interest rates, coupled with a wide fiscal deficit, weak currency and an uncertain policy environment, which have hit both consumption and investment.
“The country is marred by the investment slowdown,” said Madhavi Arora, an economist at Kotak Mahindra Bank Ltd. “The investment story has not improved in the last two and a half years. It is worsening each and every quarter.” She said she expects growth for the fiscal year ending March to be 5.6 percent. That would be the country’s worst annual performance since 2003, according to data provider FactSet.
New Delhi has been at pains to attract foreign capital and avoid a ratings downgrade, announcing ambitious reforms that are now foundering in parliament.
The ruling Congress party’s headline efforts to ease restrictions on foreign investment and allow companies like Wal-Mart Stores, Inc to open supermarkets in India sparked fierce resistance from opposition politicians, who shut down parliament over the issue, casting further doubt on the government’s ability to execute policy reforms.
While New Delhi’s reform initiatives have boosted the stock market, economists are divided over how much the policy overhaul will help the real economy in the near future.
Even if New Delhi manages to push through liberalization measures it is not clear whether foreign investors will take advantage of greater access to industries such as aviation, retail and insurance given India’s other looming uncertainties.
“All these so-called reforms are more of a euphoria-driven thing rather than [having] an actual impact on the economy,” Arora said.
India’s economy grew 5.5 percent during the June quarter, after expanding by 5.3 percent in the March quarter.
This is the slowest pace since the global recession, which dragged India’s economic growth down to 3.5 percent for the January to March quarter of 2009.