India GDP Q4 2007

India's economy is slowing - although not dramatically so - and grew at the slowest pace since 2005 during the last quarter of 2007 as tighter central bank credit reduced the rate of consumption expansion and a higher rupee slowed export growth. The economy expanded by 8.4 percent in the three months ended Dec. 31 over a year earlier, after rising by 8.9 percent in the previous quarter, the Central Statistical Organisation said at the end of last week.




Growth has slowed after the Reserve Bank of India raised benchmark rates nine times since October 2004 and increased its cash reserve cap five times since December 2006 to slow bank lending and help curb inflation, which reached a eight-month high of 4.89 percent in the second week of February. Loan growth has slowed in recent months as consumers bought fewer automobiles and washing machines because of high interest rates and delayed home purchases as prices rose. Construction grew at an 8.4% year on year rate, down from 11.1% in the previous quarter. Lending grew 22.8 percent in the 12 months through Feb. 1, less than the 29.8 percent expansion which took place over the year to Feb 1 2007.


Agricultural output grew 3.2 percent in the fourth quarter from a year earlier, after a revised 3.7 percent gain in the three months ended Sept. 30, according to the report. That was the weakest pace in 11 quarters. Manufacturing gained 9.3 percent last quarter from a year earlier, accelerating from a previous increase of 8.6 percent, according to today's report. Electricity output growth slowed to 5.3 percent from 7.3 percent.

Clearly the most important short term objectives are to bring inflation back under control and to improve the competitiveness of the export sector given that in the longer run a rising rupee is likely to be a fact of life.