(MENAFN - Arab Times) India's economy will grow 7.1 percent this fiscal year, down from 9.0 percent last year, India's Ministry of Statistics said Monday. If that turns out to be true, it would be the slowest India has grown since 2003.
The announcement comes as policymakers struggle to understand how much of India's five-year economic boom was fueled by outside financing, which has now dried up, and how much domestic demand will be able to offset waning exports. In recent weeks, various government agencies have cut growth forecasts and documented a slew of job losses.
In January, the Prime Minister's Economic Advisory Council slashed its growth outlook for the year ending March 31 from 7.8 percent to 7.1 percent, and India's central bank cut its growth forecast to 7 percent — down from a prior estimate of 7.5 to 8.0 percent — warning of a deep, protracted global downturn. Some private sector economists predict that the global downturn will hit India even harder.
Citigroup expects India's GDP to grow 6.8 percent this fiscal year and 5.5 percent next. Goldman Sachs said economic growth would hit 6.7 percent this fiscal year and 5.8 percent next. Last week, India's Ministry of Labor said 500,000 Indians lost their jobs from October to December, with export sectors like gems, autos, and textiles the hardest hit.
That number, however, only covers the organized sector, which includes just 10 percent of the nation's 385-million workers, according to Citigroup. The estimate for the year ending March 31 was released by the Central Statistical Organisation (CSO).
It would be the slowest growth rate since 2003 and will place further pressure on Prime Minister Manmohan Singh's government ahead of general elections expected in April. A number of economists have predicted that India's growth could fall below 7.0 percent this year as the global downturn takes its toll. The CSO said growth in manufacturing output was expected to be around 4.1 percent, half the 2007-08 figure, while agricultural output would expand 2.6 percent, down from 4.9 percent.
Economists also believe India's fiscal position — already one of the world's worst — will deteriorate further with the interim budget to be presented Feb 16 by the government. The budget deficit for the current year is expected to be up to triple its planned target of 2.5 percent of gross domestic product due to populist spending announced even before the global crisis hit. "The global scenario is turning gloomier by the day and export-oriented sectors are feeling the heat," said Dharma Kriti Joshi, principal economist at Crisil credit rating agency.
The Indian government's stimulus packages and interest rate reductions should start having some effect from October onwards but "meanwhile we'll have a very tough time," he said. Most economists are pencilling in growth of around 5.6 percent for next year. Pranab Mukherjee, acting finance minister as well as foreign minister, pledged last week the government "will take further steps" to shield labour-intensive sectors from the downturn.
His words came days after data showed half a million workers lost their jobs in the three months to December and an export lobby group forecast the number would hit 1.5 million by end of this fiscal year as the global slump hits textile, jewellery and auto employees, among others.