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India feels pressure as growth rate is worse than predicted

Hafizzz

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India feels pressure as growth rate is worse than predicted
India feels pressure as growth rate is worse than predicted

New Delhi: India's growth rate fell to its slowest pace in almost a decade last year, according to government estimates published Thursday, putting further pressure on a fractured coalition government in New Delhi that has been widely criticized for its management of the economy.

India's economy grew 6.5 per cent in the fiscal year that ended in March, down from 8.4 per cent the year before, as sectors like manufacturing, mining and agriculture did poorly. In a worrying sign for the rest of this year, the report showed a sharp drop-off in economic activity in the first three months of 2012, with growth falling to 5.3 per cent, from 9.2 per cent a year earlier.

Analysts were expecting India's growth rate to slow because of a contraction in new investments by the private sector and the financial effects of the crisis in Europe, but the numbers were worse than predicted. Moreover, more sectors exhibited slower growth, raising new concerns about the economy.

"The latest growth numbers signal India's deteriorating economic prospects and presage much worse to come as industrial output has stalled and investment is falling," said Eswar Prasad, an economist at the Brookings Institution and Cornell University. "These numbers reflect not just a loss of economic momentum but, far worse, a loss of confidence in the government's ability to tackle the enormous short-term and long-term challenges to sustaining growth."

The full-year growth number was below the country's growth rate during the financial crisis in 2008-09, when India grew at 6.7 per cent. The last time India grew at a slower pace was in the 2002-03 fiscal year, when it registered a 4 per cent pace.

Analysts say it will be harder for Indian policy makers to respond to a slowing economy now than during the financial crisis more than three years ago. At that time, the government's finances were relatively healthier and it was able to spend money to stimulate the economy. Now, however, New Delhi is desperately trying to cut its fiscal deficit from 5.9 per cent of its gross domestic product to 5.1 per cent. Also, the Reserve Bank of India has less room to cut short-term interest rates to stimulate lending because inflation remains high, at about 7 per cent.

Many analysts have been arguing that the best way for policy makers to respond to slowing growth is further liberalization of India's economy, large parts of which are still heavily regulated. The government could, for instance, make it easier for foreigners to invest in industries like retail, aviation and insurance that need more capital.

But the government, led by the Indian National Congress Party, has struggled to pass unpopular measures in recent months because of opposition from its coalition partners and political rivals. Last year, it indefinitely deferred a plan to allow foreign supermarkets into the country after a coalition partner threatened to pull out if the change went through.

On Thursday, much of India was shut down in protest against a sharp increase in petroleum prices by government-owned oil companies. Policy makers said the increase was needed to offset the rising cost of oil imports, which have become more expensive as India's currency, the rupee, has fallen sharply against the dollar. In New Delhi and Mumbai, normally traffic-clogged roads were largely empty Thursday afternoon.

The benchmark Nifty stock index was down about 0.7 per cent at 2:45 p.m. local time. The rupee was trading at 56.175 to the dollar after crossing 56.5 earlier in the day. As recently as February, the rupee was trading about 49 to the dollar.

UPDATE 5-Indian growth weakest in 9 years as rupee slides
UPDATE 5-Indian growth weakest in 9 years as rupee slides | Reuters

India's economic growth slumped to its lowest level in nine years in the first three months of 2012, marking a dramatic slide in the fortunes of a country whose economy boasted nearly double-digit growth before the global recession.

"Urgent and bold steps are immediately needed to prevent the economy from descending into a full blown crisis. This must be averted at all costs," said Rajiv Kumar, secretary-general of the Federation of Indian Chambers of Commerce and Industry.

The economy grew 5.3 percent in the last quarter from a year earlier, a sharp slowdown from 9.2 percent growth in the last quarter of the previous year, government data showed. The figures were the latest confirmation that the slowdown of Asia's third-biggest economy is deepening.

Finance Minister Pranab Mukherjee blamed the weak data on the poor performance of the manufacturing sector, which shrank 0.3 percent from a year earlier, and promised to take "all necessary steps" to trim the country's ballooning budget and current account deficits, which are a major drag on growth.

The data was released as the rupee plunged to yet another record low. Adding to a sense of crisis, a general strike called by opposition parties to protest a steep petrol price hike shut down government offices and shops and stalled trains and buses in some of the country's 28 states.

The poor growth figures will add to mounting pressure on Prime Minister Manmohan Singh's government to act more decisively and with greater speed to arrest the economy's slide.

"This is definitely a very important signal for the government - this is a make or break situation for India and the government has to step on the panic button," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

"If the government doesn't step in now, India's sovereign ratings may be jeopardised."

The government later announced steps to curb spending, including some cuts to discretionary expenditure, restrictions on foreign travel and the creation of new government posts. It did not spell out how much the measures would actually save and some economists saw the move as largely a symbolic gesture.

The government largely blames factors beyond its control, such as the euro zone debt crisis, for its economic woes. But many economists and investors say weak leadership and muddled policies have failed to curb government spending and alienated many foreign investors.

Slowing corporate investment, stubbornly high inflation and high fiscal and trade deficits have led to comparisons with India's 1991 balance of payments crisis, a watershed moment in the country's history that led Singh, then finance minister, to drive through transformational economic reforms.

Critics of Singh's fractious Congress party-led coalition government say it needs a crisis to break the policy paralysis that has stalled major reforms, such as allowing foreign supermarkets into the retail sector and reducing costly fuel, food and fertiliser subsidies.

But Thursday's nationwide strike called by opposition parties to protest the petrol price hike underscored the difficulty the government faces in pushing through unpopular economic reforms. The petrol price was increased last week after a six-month freeze.

The strike forced businesses, public transport, government offices and colleges to shut down in parts of the country. Mumbai, India's financial capital, appeared hardest hit. The usually bustling city looked deserted as people stayed at home and many shops remained closed.

Protesters in some states pelted buses with stones and set others on fire. Police made hundreds of arrests. Most of the country's jewellery shops and major wholesale markets did not open.

The 5.3 percent growth rate was much weaker than expected and was even below the lowest forecast in a Reuters poll that had produced a median of 6.1 percent from predictions ranging between 5.5 percent and 7.3 percent.

Quarterly expansion was last lower in the January-March quarter of 2003 at 3.6 percent, Thomson Reuters data showed.

SLOWDOWN BOTTOMED OUT?

The GDP data showed that the manufacturing sector shrank 0.3 percent compared with a year earlier. The farm sector grew just 1.7 percent.

Gross domestic product rose 6.5 percent in the fiscal year to the end of March 2012, the lowest growth rate since 4.0 percent in 2002/03 and a sharp slowdown from the previous year's 8.4 percent.

In the three years before the global financial crisis, India's economy was roaring with growth of well above 9 percent, fuelling ambitions to challenge China as the world's top emerging economy.

Indian benchmark 10-year government bond yields dropped 16 basis points as investors started to price in an interest rate cut to help the economy. India's main stock index was down about 0.6 percent.

Standard & Poor's cut India's credit rating outlook in April to negative from stable, worried by India's fiscal and current account deficits. The decision jeopardises India's long-term rating of BBB-, the lowest investment grade rating.

Mukherjee said on Thursday most of the factors that had led to India's growth slowdown had "bottomed out".

Private economists have cut growth forecasts to between 6 percent and 6.5 percent for the current fiscal year to March 2013. The government forecasts close to 7.5 percent.

The rupee fell on Thursday to a record low beyond 56.50 per dollar. Its slide of 14 percent from its 2012 high adds to inflation concerns in the country and raises the cost of imports.

India’s manufacturing hits brick wall as economy slows
http://www.washingtonpost.com/world...conomy-slows/2012/05/31/gJQAlYar4U_story.html

It was supposed to be the motor for the next phase of India’s economic resurgence, but the country’s manufacturing sector has hit a brick wall, according to new data released Thursday.

Dragged down by a sluggish manufacturing sector, India’s economic growth rate slowed to 6.5 percent in the 2011-12 fiscal year, its slowest rate in nine years and well below the 8.5 percent recorded a year earlier.

Many countries would consider that an impressive performance, but for a country that dreams of emulating China and pulling hundreds of millions of people out of poverty, the slowdown has come as a shock.

Manufacturing grew by just 2.5 percent over the entire year, and actually contracted in the final quarter of the fiscal year compared with a year earlier.

India’s economy had recorded breakneck rates of growth over the past decade, but unlike the other Asian miracle economies, it was built more on a vibrant services sector than on a take-off in manufacturing.

India’s ailing and overburdened infrastructure, intermittent power supplies, clogged ports and potholed roads have long added to the costs of manufacturing here. But more fundamentally, the government’s failure to keep up with the private sector’s needs may have finally reached a critical point, with archaic land acquisition and labor laws acting as a major drag on the manufacturing industry’s investment and employment plans.

“The reason manufacturing is not doing well in India is reflective of the broader problems in the economy,” said Ruchir Sharma, head of emerging markets at Morgan Stanley and author of “Breakout Nations,’’ a book that questions the notion that the BRIC economies of Brazil, Russia, India and China are guaranteed rosy economic futures.

“There is too much land in agriculture, the land acquisition laws are complicated and labor law is very primitive,” he said.

A stalled plan

As a share of the economy, manufacturing has risen only marginally — from 13 percent four decades ago to around 16 percent now — compared with more than 20 percent in many countries, such as Japan and Taiwan, at their peak and nearly 30 percent in China today.

In China, manufacturing has been an employment generator, pulling people away from agriculture and out of poverty, while manufacturing exports have earned the country a massive trade surplus.

By contrast, Indian employment growth has struggled to keep up with a rapidly expanding population. While there are little reliable data, unemployment levels appear to have risen in the past decade despite rapid rates of economic growth, and the trade deficit has widened sharply as growing consumer demand has sucked in manufactured goods from abroad.

The government says India needs to create 220 million jobs by 2025 as more young people enter the labor market, and that the manufacturing sector will have to carry most of the burden.

Every new manufacturing job creates two or three jobs in related activities, it says, aiming to raise manufacturing’s share of the economy to 25 percent by 2022 under a new National Manufacturing Policy.

“We need the manufacturing industry to be much more dynamic than it has been in the last 20 years,” said Arun Maira of India’s Planning Commission. “We need much more jobs growth.”

But nearly a year after the plan was unveiled, little has happened.

Kumar Mangalam Birla, one of India’s most successful business leaders, has built up the family firm, the Aditya Birla Group, into a $35 billion conglomerate that operates in 33 countries and gets 60 percent of its revenue from abroad.

But Birla is frustrated by the government’s policy “flip-flops.” His own plans for a steel refinery in the western state of Madhya Pradesh were thrown into chaos two years ago when the government withdrew environmental clearances and canceled an allocation of coal the plant required.

Birla said business leaders have gotten used to building their own ports and roads and supplying their own power, but this was a step too far.

Taking over the company at age 28 in 1995 after the death of his father, Birla diversified abroad to access raw materials, technology and new markets.

The strategy was not about reducing his risk exposure to India, he said — until now.

“I would rather make an investment in Brazil than in India today,” he said.

Regulation maze

It is a trend that many Indian business leaders are now following.

One reason is it is almost impossible to obtain land to build factories.

For decades, the rich and powerful abused a colonial-era law that allowed them to throw farmers off their land for minimal compensation. But in the past decade, protests by farmers have stalled many projects, including the country’s largest foreign direct investment project, a $12 billion steel refinery in eastern India by South Korea’s POSCO.

The government has proposed a new land acquisition law that is supposed to make the process fairer and more transparent but could make land even more difficult to obtain, industry groups say.

Strict labor laws that date to the era of British rule and to India’s brush with socialism have also stymied industrial growth, making it difficult to fire workers. Economists say the laws have encouraged investment in capital-intensive rather than labor-intensive industries, though some companies get around it by hiring contract workers at lower wages.

As much as the laws themselves, it is the way regulations are implemented that frustrates many smaller industrialists.

A first-generation entrepreneur, Bipul Bedi went into business 20 years ago making auto parts in the city of Gurgaon, just south of Delhi.

His business has grown from “one man and one machine” to a $10 million concern today. But the maze of regulations involving different government departments, the lack of guidance and the attitude of bureaucrats have exhausted him. Now he plans to immigrate to Canada.

“They are just into fault-finding,” he said about many of the officials he encounters. “They just want to twist your arm somewhere, so that you have to put your other hand into your pocket.”
 

rai_kamal

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Yeah, there is a lot of pressure on our government to bring more and more foreign currency and to do more reforms necessary for our economy.
Hope MMS gives his best atleast this time, the situation is still not similar to 1991 but country needs his intelligence to get out of this situation. Well we can only hope for the best from MMS and pranab babu.
 

Android

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You are continuously opening threads on banned topic still you easily get away with that how???
 
Apr 5, 2012
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@ Ignited Mind...
Thanks, for such informative Picture Posts !!

@Thread
All major economies are showing a slowdown than Projected growth...But soon our Govt. will take actions to help economy. Indians can fully rely on MMS & Pranab Mukherjee in such situation & Chill :)
 

Chinese-Dragon

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It definitely has NOT "bottomed out".

In fact the collapse of the Rupee occured AFTER the last quarter. So the next quarter will most likely be far worse.

And for the Indians complaining about banned topics, did you see that thread on China's economy that has been running for 9 pages?

Deal with it. We certainly did.
 

Ignited Mind

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Euro zone joblessness hits highest ever level in March, April

(Reuters) - Joblessness in the euro zone rose to 11 percent in March and April, the highest level since records began in 1995, the European Union's statistics office Eurostat said on Friday.

ECONOMISTS' COMMENTS

MARTIN VAN VLIET, ING

"The labor market recession in the euro zone continues to spread and deepen. The number of jobless in the 17-country region rose by 110,000 in April, marking the 12th straight monthly increase.

"The lack of change in the overall euro zone unemployment rate reflected increasing disparities between countries, with the jobless rate in Germany falling to 5.4 percent and unemployment in Spain and Portugal increasing further from already intolerably high levels. Unemployment in France, Italy, the Netherlands, and Belgium also edged higher.

"Unfortunately, the downturn in the euro zone labor market is not over yet. The employment expectations indices from the European Commission's business survey have worsened sharply in recent months, pointing to further increases in unemployment ahead.

"We currently see the jobless rate peaking at or slightly above 11.5 percent, under the assumption that the Eurozone economy starts to emerge from its double dip recession later this year.

"However, the downturn may well prove more protracted as the bleak manufacturing PMI figures released earlier today remind us. Hence, the risk is for an even higher peak in unemployment.

"All in all, today's grim unemployment figures provide a sober reminder that the euro zone economy is in desperate need of a more expansionary policy stance. In practice, this likely means a combination of a less contractionary fiscal thrust, a more expansionary monetary policy, and a weaker exchange rate. Moreover, drastic steps have to be taken to address the escalating debt crisis."

PHILIP SHAW, INVESTEC

"Certainly the rise to 11 percent was in line with expectations, Germany appears to be broadly bucking the trend with unemployment broadly steady, but the weakness of euro zone activity has resulted in a worrying increase in joblessness and that doesn't look as it is going to be reversed at any time soon.

"The high level of unemployment is putting cyclical pressure on government expenditure in many of the euro zone's economies and that's contributing to the lack of confidence in many of the euro zone's sovereign debt markets.

"It's all part of the bigger picture and obviously the range of unemployment across the euro zone is something to look at as well, we are at extremely high levels in several euro zone economies."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"The number of jobless across the euro zone rose a further 110,000 in April after rising by 438,000 in the first quarter of 2012. It was hardly any comfort that this was down from a rise of 133,000 in March and was the smallest increase since December.

"April's rise took the total up to 17.405 million, which is the highest level since the euro zone was formed in January 1999.

"Furthermore, this was the 12th successive monthly rise in euro zone unemployment, and brought the cumulative rise to 1.797 million since April 2011."

"Most countries saw unemployment increase in April although the increase was generally moderate in the core northern euro zone economies and the unemployment rate actually dipped to 5.4 percent in Germany.

"Worryingly but unsurprisingly, unemployment continued to move higher in the struggling southern periphery countries - Spain, Italy and Portugal. Indeed, the Spanish unemployment rate hit a dismal 24.3 percent. Greek unemployment is also rising sharply although there was no data for April.

"With the euro zone seemingly headed for renewed clear GDP contraction in the second quarter - and with overall Eurozone business confidence taking a further serious hit in May to be at the weakest level for two years or more across sectors - the likelihood is that the euro zone unemployment rate will move significantly higher.

"Indeed, it now looks odds-on that the euro zone unemployment rate will reach 11.5 percent by the end of the year, although the situation will vary markedly between countries.

"Companies generally are under serious pressure to keep their labor forces as tight as possible to contain their costs in the face of current limited demand, strong competition, squeezed margins and worrying and uncertain growth outlooks. Significantly, the European Commission's business and consumer survey shows that employment expectations weakened across all sectors in May, as they had done in April.

"Indeed, employment expectations sank to a 27-month low among service companies in May and were at a 23-month low for industrial companies.

"Furthermore, public-sector jobs are likely to be pared in a number of countries going forward as part of the austerity measures being implemented.

"Meanwhile, the further marked rise in euro zone unemployment in April maintains belief that consumer spending will be generally muted in the near term at least, especially as consumers are also facing muted wage growth and tighter fiscal policy in many countries."

LINKS

For full Eurostat data click on:

here

MARKET REACTION

For any foreign market reaction click on <USD/>

For more details of currency market moves see

For any bond market reaction, click on <GVD/EUR>

For a one-page snapshot of real-time G7, euro zone and Swiss economic data releases, click on

(Reporting by Robin Emmott and Ben Deighton)

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01062012-AP/EN/3-01062012-AP-EN.PDF

Eurozone unemployment at record high

Job losses, unemployment climb in Europe - Jun. 1, 2012

China's manufacturing sector falls sharply

China's manufacturing sector falls sharply - May. 31, 2012

UK production falls to three-year low as eurozone crisis worsens

UK production falls to three-year low as Europe crisis worsens | The Manufacturer
 

rai_kamal

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It definitely has NOT "bottomed out".

In fact the collapse of the Rupee occured AFTER the last quarter. So the next quarter will most likely be far worse.

And for the Indians complaining about banned topics, did you see that thread on China's economy that has been running for 9 pages?

Deal with it. We certainly did.
There is only one thread about chinese economy but and 2-3 threads about Indian economy..
Is your eye also invisible with your existence "Dragon"..
 

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