India’s economy grew 5.3% during January-March (Q4), the eighth successive quarterly decline, and the slowest pace in nine years. For the full year, the economy grew 6.5%. The only hope in this gloomy outlook is that most economists now expect inflation to remain capped around current levels, with growth having fallen so sharply. All eyes are now on the Reserve Bank of India; expectations of the central bank cutting interest rates at its June 17 meeting have gone up with the latest dismal GDP number.
What is worrying economists is the slowdown in the services segment, which had been cushioning the decline in GDP growth.For the fourth quarter, services grew 7.9%, farm sector growth fell to 1.7%, manufacturing sector’s negative growth of 0.3% and construction sector growth fell to 4.8%. Reflecting slowdown in the economy, the growth rate of eight infrastructure sectors slowed down to 2.2 per cent in April because of poor performance of crude oil, natural gas, petroleum refinery products and fertilizers. RBI would find it difficult to reduce interest rates if inflation continued to remain high.The 30-share Sensex slipped 225 points to 16086 after the GDP figure was announced, but recouped losses soon after and is around 16123. The yield on 10-year government bond has fallen to 8.43%. These indicate that both the stock and bond markets are betting on the RBI reducing interest rates at its next meeting on June 17. India’s fiscal deficit during the 2011-12 fiscal year that ended in March was Rs 5,20,000 crore, or equivalent to 5.9% of India’s gross domestic product. GDP forecast for FY13 to 6.3-6.6% from around 7% by foreign brokerages but we are hopeful to reach it around 6.5%-7%.