India forecasts bleak economic growth for 2012

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A man smokes in front of a closed shop displaying the Loop mobile logo on its shutter in Mumbai 2 February, 2012. Photo - Danish Siddiqui/Reuters

India is in throes as it posts slow economic growth, below 7% for the 2011-12 financial year. The figure for 2010-11 was 8.4%. According to analysts, high interest rates, political gridlock and the possibility of an oil shock contributed to the slow economic growth.

The downward trend is a reflection of a slowdown in mining, agriculture and manufacturing sectors. According to Andrew Kenningham of Capital Economics in London, “growth prospects are not looking good by historical standards.”

Analysts point to the global market uncertainty, especially in the eurozone, and apparent paralysis of policies by the Indian government as the contributing factors. The rupee is steadily devaluing. Inflation and growing interest rates have been a persistent problem. The interest rate was raised 13 times since March 2010 as part of efforts to slow price increases.

The rating agency Standard & Poor?s does not expect to downgrade India’s investment-grade credit rating but credit analyst Takahira Ogawa believes negative factors might force the agency to revise its outlook on India.

However, Sensex stock exchange continued to perform well by registering a 15% increase. Indian shares and bonds remained unchanged following the report of the growth estimate.

Although the central bank has taken aggressive measures to tighten interest rates, domestic outlook still looks bleak. The government’s estimate for the fiscal year 2011/12 shows that farm output is expected to grow 2.5%, while the manufacturing sector is likely to grow 3.9%.

Source: BBC, Reuters

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