Economy grows 7.

7% in Q1, slowest in 6 quarters

TNN | Aug 31, 2011, 04.20AM IST NEW DELHI: The Indian economy expanded at its slowest pace in six quarters as the impact of rising interest rates, high inflation and global uncertainty took its toll and economists said they expect further moderation in the quarters ahead as economic woes continue in large areas of the developed economies. But while growth has moderated, India is still one of the fastest growing economies in the world. This is the second successive quarter when growth has slowed below the 8% mark but still remains robust compared to other global economies. Data released by the Central Statistics Office on Tuesday showed growth in the AprilJune quarter of the current financial year stood at 7.7% compared to 8.8% in the same year-ago period. In the January-March quarter, the economy expanded 7.8%. Finance minister Pranab Mukherjee said the data was disappointing but called for more hard work for robust expansion. "There is no room for complacency. We shall have to work hard, government, industry and I am confident that our workers and farmers will contribute and ensure growth with inclusion, Mukherjee told reporters. The manufacturing sector grew 7.2% in the April-June quarter below the 10.6% registered in the first quarter of 2010-11. The farm sector grew a robust 3.9% in the June quarter, up from 2.4% in the same year-ago quarter. The services sector,

which accounts for more than 52% of GDP, held its ground and grew 10% in the June quarter. The construction sector was the laggard, growing 1.2%
in the June quarter, down from 7.7% in the 2010-11 first quarter. The statistics office also lowered the base for the year-ago quarter to 8.8% from the previously announced 9.3% and economists said this had helped project a healthier number. "Growth is poised to decelerate further due to the full impact of the ongoing monetary tightening and the worsening global backdrop, said Rajeev Malik, senior economist at CLSA. Investment and consumption have slowed as RBI raised interest rates 11 times in the past 18 months to calm price pressures. But inflation still remains elevated at around 9%. The RBI has said that after above-trend growth during 2010-11, growth is expected to decelerate but remain close to the trend of about 8% in 2011-12. If global financial problems amplify and slow down global growth markedly, it would impart a downward bias to the growth projection of around 8% indicated in the monetary policy. It has said that growth prospects for the year 2011-12 seem to be relatively subdued compared to the previous year. Global uncertainties, high global oil and commodity prices, persistent inflationary pressures, rising input costs, rise in cost of capital due to

monetary tightening and slow project execution are some of the factors that are weighing on growth. CLSA's Malik said the latest GDP details were supportive of another rate hike by the RBI on September 16 when it reviews monetary policy. He said the ongoing moderation in growth suggests that the RBI would likely have to cut its GDP growth forecast of 8%, probably in its mid-year review towards end-October. Industry groups also voiced concern over the moderation in growth. FICCI said business confidence was now at a two-year low. "If the current trends are any indication, FICCI estimates that the GDP growth in the current fiscal may be in the lower band of 7.5%-8% with some significant downside risks, said Rajiv Kumar, Ficci secretary-general.