India's economic growth slumped to a near three-year low of 6.1 percent in the quarter ended December due to poor performance of manufacturing and mining sectors, official data showed Wednesday.
The data makes it increasingly clear that growth is likely to fall well below seven percent against the budgetary target of 9 percent and the 7.1 percent growth projected by the Prime Minister's economic advisory panel recently.
This was the slowest pace of economic growth in the last 11 quarters. Higher interest rates, rising inflation, global economic turmoil and a slew of policy issues curbing investment sentiment have contributed to the economy's dismal performance.
This was also the seventh consecutive time that quarterly growth had slipped. It had risen by 6.9 percent in the quarter ending September and 7.7 percent in the three-month period before that.
The persistent slowdown in growth will make it difficult to achieve the even lower revised 6.9 percent growth in the financial year ending March 31.
“Real GDP growth rate for the third quarter of 2011-12 at 6.1 percent may drive GDP growth to below 6.9 percent for current fiscal,” said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry (Ficci).
Kumar pointed out that if economic growth fell below 6.8 percent, it would be lower than the growth registered in 2008-09, the year of the post-Lehman crisis.
Manufacturing was hit hard, logging a meagre 0.4 percent growth in the quarter under review, compared to 7.8 percent in the previous corresponding period, according to data released by the ministry of statistics and programme implementation.
Mining was another sector hit badly and contracted by 3.1 percent. It had registered a growth of 6.1 percent in the October-December quarter of 2010-11.
Agriculture also saw a sharp decline at 2.7 percent but that was mostly because of a high base as the sector had grown 11 percent in the year-ago period. Financial services grew at 9 percent in the quarter, while social and personal services logged a 7.9 percent growth.
“The near stagnation in the manufacturing sector is worrying at a time when policy makers are keen to raise the share of this sector in the economy. Mining is also an area of serious concern, as the sector has been contracting for two consecutive quarters,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII).
Banerjee urged the government to push forward the economic reform process to stimulate growth.
“All policy levers should be used to drive a revival in the economy. Project clearances should be hastened, implementation of the manufacturing policy should begin by identifying specific zones where industry can invest and interest rates should be reduced,” he said.
The latest figures will come as a disappointment to policy-makers in the run up to the budget. The scenario is not likely to change much in the current quarter as well since, according to the advanced estimates given by the government, the GDP is expected to increase by only 6.9 percent for the whole year.
“With fourth-quarter estimates also being weak, it is virtually certain that the GDP numbers for the current fiscal will stand below 7 percent," said Anis Chakravarty, director & senior economist, Deloitte Haskins & Sells.
"It is important that policy-makers now re-focus on the structural constraints plaguing the economy and dragging growth down. Unless strong measures are taken to have an implementable plan for revival of the manufacturing sector, it is unlikely that GDP numbers in the coming quarters will improve noticeably," he added.