Indian government savaged over shock GDP figures

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June 2, 2012

The Reserve Bank of India has warned that the unimpressive GDP numbers released on Thursday could be a signal for a further decline in the Indian economy. Commentators said that the results were a wake up call for the current government that has been hit by corruptions scandals and infighting.

June 2, 2012

The Reserve Bank of India has warned that the unimpressive GDP numbers released on Thursday could be a signal for a further decline in the Indian economy. Commentators said that the results were a wake up call for the current government that has been hit by corruptions scandals and infighting.

India's central bank warned Friday economic growth could fall further after the country's worst quarterly figures in nine years, as business leaders and newspapers blasted the government over the slump.

Data for the January-March quarter released on Thursday showed growth in gross domestic product of just 5.3 percent, high by the standards of developed countries but a severe disappointment in once-booming India.

"Unless we work hard, it (the growth rate) will go down further," Reserve Bank of India Deputy Governor K.C. Chakrabarty warned in comments to reporters on the sidelines of a conference.

Many commentators described the figures as a wake-up call for the left-leaning coalition government, elected in 2009 but since riven with infighting and sapped by a string of corruption scandals.

"Goodbye 2020, Hello 1991!" declared the front page of The Economic Times, implying India was heading back to the early 1990s when it required a bailout from the International Monetary Fund.

In addition to the GDP figures, India's other indicators are a source for worry: the rupee is at historic lows, annual inflation remains high at around 7.0 percent, while the current account and public deficits are large.

Policymakers are also constrained. The high public deficit means there is little scope for extra government spending to spur the economy, while high inflation makes cutting interest rates difficult for the central bank.

Ideological differences in the coalition and distractions over corruption scandals mean the government has been unable or unwilling to push through reforms to open up the economy and cut red tape, analysts say.

An attempt to open the retail sector to foreign investment last year — a long-standing proposal recommended by business leaders — ended with a revolt in the coalition and an embarrassing U-turn.

In minor measures announced since the publication of the GDP data, the government announced a ban on officials meeting in five-star hotels to save money and a new body to monitor blocked investment projects.

The new so-called Investment Tracking System is "to ensure speedy implementation" of projects held up by red-tape such as the need for security or environmental clearances, Prime Minister Manmohan Singh's office said.

The daily business newspaper Mint told its readers to prepare for worse after Thursday's shock data, which also showed GDP growth in the full fiscal year to March fell to 6.5 percent from 8.4 percent in 2010/2011.

"India has landed in this muddle because of the spectacular mismanagement of the economy by the United Progressive Alliance," it declared in an editorial, referring to the coalition headed by the Congress party.

The dual leadership of Premier Manmohan Singh, an economist, and the boss of the Congress party, Sonia Gandhi, should be "junked right away," it said, while warning of a return to the unrest of the 1970s unless the economy improved.

In a damning note to its clients, investment bank Morgan Stanley said that it had reduced its estimate for growth this fiscal year to 5.8 percent from 6.3 percent.

Capital Economics, a research consultancy, slashed its 2012 forecast to 6.0 percent from 7.0 percent.

In the business world, leading corporate lobby groups the Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry renewed their calls for economic reforms to jump start growth.

"We have to get back on the track of reforms," said CII president and leading businessman Adi Godrej, who also heads the sprawling Godrej conglomerate.

"The India story isn't over. I'm very confident on the future of the Indian economy. Its future is very strong."

Sajjan Jindal, the chairman of JSW Steel, lamented the poor economic record of the government.

"This is truly a missed opportunity," he told The Economic Times. "At a time when the whole world is looking to invest in developing economies, internal issues have plagued our nation."


Courtesy: nydailynews