New Delhi: India may have seen accelerating growth in the June quarter thanks to stimulus measures, but drought in nearly half of the country’s districts and the global slump could hinder faster recovery.
The country’s gross domestic product is estimated to have expanded 6% in the quarter from a year earlier and faster than 5.8% in March quarter, the median forecast in a Reuters poll of 15 analysts showed.
“Essentially, it was due to the government stimulus and higher spending before the (April/May) elections,” said D K Joshi, principal economist of rating agency Crisil.
India’s domestic demand-driven economy fared better during the global downturn than most of its Asian peers, such as Japan, Taiwan, Singapore and Hong Kong, which slipped into recession last year as the financial crisis hurt more export-dependent economies.
The Reserve Bank of India slashed its lending rate by 425 basis points between October and April to help Asia’s third-largest economy weather the shocks of the global slowdown.
The government also cut duties and increased spending, which has put the fiscal deficit on track for a 16-year high of 6.8% of GDP for the current year, to be financed by a record Rs451 crore ($92.4 billion) in borrowing.
But poor rains since the monsoon season began at the start of June cloud growth prospects in an economy where rural consumption accounts for more than half of domestic demand.
Private economists said a drought could potentially erode economic growth this year by 1 or 2 percentage points. A weak recovery in the United States and elsewhere could also slow India’s return to a high rate of growth.
On Tuesday, Union finance minister Pranab Mukherjee said the economy could grow around 6% in the year to March 2010, lower than the 6.7% growth in 2008-09 and after expanding 9% or more in the previous three fiscal years.
The prime minister’s economic adviser, C Rangarajan, said the economy could bounce back to 7-8% growth in 2010-11.
In the June quarter, industrial production, which accounts for a quarter of GDP, expanded by 3.7% but exports were down 31.3%.