Alarm bells are clanging as economic growth nosedived to a nine-year low,core sector output continued to flounder,and the fiscal deficit widened,buttressing worries arising from intensifying macroeconomic headwinds and a sharp drop in business sentiment.
The countrys annual economic growth recorded a dramatic slide in the January-March quarter to touch 5.3 per cent as the manufacturing sector contracted and the rupee fell to a record low. Industry renewed the pitch for urgent and bold steps from the government to prevent the economy from descending into a full-blown crisis,a line that has found favour with the Prime Ministers top economic advisor,who categorically called for more proactive steps to attract capital flows as the most viable way out of the crisis.
Data released by the Central Statistical Organisation today showed that with growth plummeting in the fourth quarter,gross domestic product rose just 6.5 per cent in fiscal year 2011-12,the lowest growth rate since the 4 per cent clocked in fiscal 2002-03 and sharply lower than the previous years 8.4 per cent.
In line with the trend,during April,the growth rate of the eight infrastructure sectors slowed to 2.2 per cent because of a lacklustre showing by sectors such as crude oil,natural gas,petroleum refinery products and fertilisers. The cumulative growth rate of infrastructure industries during 2011-12 also slowed to 4.4 per cent from 6.6 per cent in 2010-11,according to commerce and industry ministry data issued today.
Meanwhile the governments fiscal deficit during 2011-12 registered at 5.7 per cent of the GDP,lower than 5.9 per cent projected in the revised estimates in the Budget,but well over a percentage point higher than the 4.6 per cent projected at the beginning of the year,according to provisional data released by the Controller General of Accounts today.
Blaming the tight monetary policy for the disappointing figures,Finance Minister Pranab Mukherjee promised that the government would take all necessary steps to address the imbalance on the fiscal front and on the current account. Among the factors that have contributed to the slowdown are the tight monetary policy that led to a significant rise in the interest costs and the weak global sentiments that affected growth in domestic private investment. The domestic investment sentiments may have been also affected by the environmental policy bottlenecks in the mining sector, he said.
Planning Commission Deputy Chairman Montek Singh Ahluwalia admitted to the Government underestimating the extent of the slowdown. It is obvious that the last quarter (growth) was disappointingly low. So,the slowdown is more than what we thought…We have to do something about it, he said.
Reacting to the data,industry called for urgent and bold steps from the Government. (A full-blown crisis) must be averted at all costs, said Rajiv Kumar,secretary-general of the Federation of Indian Chambers of Commerce and Industry.
In fact,the PMs Economic Advisory Council chairman C Rangarajan indicated that attracting capital flow was the more viable way out of the crisis,arguing that the uptick in inflation has considerably diminished the Reserve Bank of Indias legroom to intervene in the forex market to prop up the plunging rupee.
We need to take measures to encourage capital flows. Foreign direct investment will be influenced by better growth prospects. We need to allay some of the concerns of FIIs to encourage investment in equity and debt, he told The Indian Express in an interview earlier this month.
The weakening of the countrys economy,likely driven by poor investment and widening trade gap,comes at a time when global investors are increasingly wary after a series of government flip-flops on economic reform and tax decisions,heavy government spending on subsidies and a fiscal budget deficit that is threatening the countrys investment-grade credit rating.
The data also poses a dilemma for policymakers as they have no fiscal room to stimulate growth,while the scope for monetary easing is very narrow due to a rebound in inflation. In an attempt at assuaging investor sentiment,the Government today announced a series of austerity steps,including a 10 per cent cut in non-plan expenditure for the current fiscal to contain its ballooning fiscal deficit. However,the cut,according to a statement released by the Ministry of Finance,excludes interest payment,debt repayment,defence capital,salaries,pensions,and grants to states.
Reacting to the dismal numbers,the benchmark BSE index closed down 0.6 per cent and the 50-share NSE index ended 0.5 per cent lower. The rupee ended at 56.09 to the dollar,after hitting a record low of 56.52 intra-day.