April 20, 2024

India’s Economy Grew 7.8 Percent in January-March Quarter

NEW DELHI — India’s economy grew at a slower 7.8 percent in the January-March quarter from the same period a year earlier, as rising interest rates crimped consumption and investment.

The pace of growth eased from the 8.3 percent expansion in the previous quarter and fell below the median forecast for growth of 8.2 percent in a Reuters poll.

For the full 2010-11 fiscal year, which ended in March, the economy grew 8.5 percent, compared with the government’s forecast of 8.6 percent.

“Not a disaster, but adds to the idea that E.M. growth is cooling as tighter policy kicks in,” said Jonathan Cavenagh of Westpac Institutional Bank in Singapore, referring to emerging markets.

With inflation still elevated, he said, the Reserve Bank of India is likely to keep raising interest rates, “which will not be welcome by the equity market.”

Most economists expect the central bank to raise its main policy interest rate by 25 basis points at its review on June 16, after it raised its key rates by a bigger-than-expected 50 basis points in May.

India’s farm sector expanded at 7.5 percent during the January-March quarter from the year-earlier period.

Meanwhile, manufacturing grew 5.5 percent in the same period, less than the 6 percent annual growth seen in the previous quarter.

Agriculture is expected to perform well for the second straight year after the government forecast a normal monsoon in 2011. Prospects for the summer harvest got a boost after annual monsoon rains hit the southern state of Kerala two days ahead of schedule.

Still, rising borrowing costs and higher input prices have started to crimp consumer demand.

The Reserve Bank of India has raised its policy rate by a total of 250 basis points in nine moves since March 2010 as part of battle against stubbornly high inflation. Analysts have forecast an additional increase of 75 basis points by the end of December.

April car sales rose at their slowest pace in nearly two years, rising 13.2 percent from a year earlier, as higher interest rates, fuel prices and vehicle costs crimped demand in the world’s second-fastest growing auto market, after China.

Construction of big projects was delayed during the winter over environmental clearances as well as difficulty securing coal for new power plants.

Article source: http://feeds.nytimes.com/click.phdo?i=607345f4e5686d286235924e5f2758e0

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