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Saturday, May 31, 2008

India GDP Q1 2008

India's economic growth has slowed somewhat of late and held at its weakest pace since 2005 in Q1 2008 as the highest interest rates in six years discouraged consumer spending and investment, while a more complex global environment reduced the possibilities for expanding India's exports. India's economy expanded at a year on year rate of 8.8 percent in the three months to March 31, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi yesterday.

These numbers are hardly indication of a dramatic slowdown, and are still above numbers that people would have been describing as "overheating" only a couple of years ago, but still India is a poor country and population growth is still rapid, so getting headline GDP growth is something of a priority, although the trick is to get it without the accomapnying inflation, especially given what is happening to global food and energy prices.

Naturally the data is producing all manner of reactions, with Finance Minister Palaniappan Chidambaram urging policy makers at the central bank to ensure they don't damp economic growth as they try to slow inflation (which of course has doubled in the past four months to over 8 percent). India's central bank has twice forced banks to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.

The Bank however will take there own view, and are, in my opinion, likely to continue to act to try to contain inflation - which is no easy matter - since if they do not accomplish this it will be hard to sustain the economic growth that everyone so much wants in the longer term.

India's economy expanded 9 percent in the year ended March 31, which is the slowest rate since 2005, according to yesterday's report, but again the order of magnitude in the reduction is small. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.

Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.

In an attempt to boost growth, the finance ministry this week raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.

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