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Friday, August 29, 2008

India's Growth Rate Slows Further In Q2 2008

In the second quarter of 2008 (the first quarter of the financial year) India’s economy grew at it slowest rate in three years, as the Reserve Bank of India struggles to control record high inflation by applying tight credit conditions. Annual growth slowed to 7.9 per cent in the quarter of 2008 which ended on June 30, significantly lower than the 8.8 per cent rate reported for the January to March quarter.

Growth momentum has obviously been slowing on tighter monetary policy and the adverse global environment. Higher interest rates, slower bank credit growth and higher oil and commodity prices are evidently now having a marked effect on activity levels in the Indian economy. However, in spite of the slowdown, the growth rate of Asia’s third largest economy remains strong, and there are very positive signs of resilience in the face of what is now a global economic slowdown. China’s economic growth also slowed in the second quarter dropping to a 10.1 per cent year on year rate, from 10.6 per cent in the first quarter.

Despite this slowing growth the Reserve Bank of India is very likely to maintain its tight policy stance until it succeeds in bringing inflation down significantly from the current double digits level. Inflation fell back slightly in mid-August but it may well tick up again before the year is out.

Growth in the services sector, which includes banking, transport and leisure, and the construction sector remained strong at 10 and 11.4 per cent respectively. The manufacturing sector suffered the sharpest fall as it grew only 5.8 per cent compared to 10.9 per cent in the same period in 2007.