India's GDP growth rate plunges to 5.3%

Indian economy

India's annual economic growth rate slumped in the January-March quarter to a nine-year low of 5.3 percent as the manufacturing sector contracted and a fall in the rupee to a record low suggests the economy remains under pressure in the current quarter.

Anubhuti Sahay, an economist at Standard Chartered Bank in Mumbai said the data was shocking.

India's GDP growth rate was much lower than expected and was even below the lowest forecast in a poll that had produced a median of 6.1 percent from predictions ranging between 5.5 percent and 7.3 percent.

The data highlights the unusual degree of weakening of the country's economy, likely driven by poor investment and widening trade gap, said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong.

The data also poses a dilemma for policymakers, as they have no fiscal room to stimulate growth, while monetary easing scope is very narrow, at least for now, due to rebounding and high inflation.

The growth rate in the final quarter of India's fiscal year was the lowest since 3.6 percent in the January-March quarter of 2003, data shows.

The data showed that the manufacturing sector shrank 0.3 percent in the quarter compared with a year earlier. The farm sector grew 1.7 percent.

Gross domestic product (GDP) rose 6.5 percent in the fiscal year to the end of March 2012, the lowest growth rate since 4.0 percent in 2002/03 and a sharp slowdown from the previous year's 8.5 percent.

The impact of the euro zone debt crisis, a lack of economic reforms and high interest rates dragged on India's growth throughout last year.

Before Thursday's data, private economists had cut forecasts for Asia's third-largest economy to between 6 percent and 6.5 percent for the fiscal year to March 2013. The government forecasts close to 7.5 percent.

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