New Delhi: India’s economy probably grew an annual 7.3% in the July-September quarter, grinding out its slowest pace in nearly four years as tight monetary policy to fight soaring prices put a brake on demand.
A Reuters poll of 13 economists forecast expansion in the quarter, the second of the 2008/09 fiscal year, below the previous period’s 7.9% and the average annual 9% witnessed in the past four years.
Evidence of a sharp slowdown in Asia’s third-largest economy has surfaced with industrial growth between April and September of just 4.9%, down nearly a half from a year ago.
Industrial output accounts for a quarter of India’s gross domestic product.
“Industry has started slowing. Slackening of demand, high interest rates and worsening of the global scenario is going to be reflected in the GDP numbers,” said Riyaz Khan, an economist with the Centre for Monitoring Indian Economy.
India’s most widely watched price measure, annual wholesale price inflation, rose to a peak of nearly 13% in early August, the highest rate since the current series began in 1995, spurred on by rising food and commodity prices and a 10% hike in retail fuel rates.
In response, the Reserve Bank of India lifted its key lending rate to a 7-year high of 9% in late July.
Inflation has since slowed to below 9% in early November, largely helped by the collapse in the price of crude oil, a major import for India.
Economists said the services sector, which accounts for more than 50% of GDP, would grow at 9.0-10.0%, while farming, which contributes nearly 18% of total output, would likely expand by 4% from a year ago.
Indian officials have been steadily rowing back on growth estimates for the full fiscal year after the spreading global financial crisis froze credit markets, and recessions in major economies threatened exports of goods made in India.
The Reserve Bank of India has taken aggressive action since October, slashing its key lending rate and banks’ reserve requirements and is expected to act again soon.
Finance Minister P Chidambaram has said monetary policy was now biased towards stimulating growth and the central bank was likely to lower rates as inflation cools.
Prime Minister Manmohan Singh, has said he expects India to emerge stronger from the global downturn and remained optimistic of 8% annual expansion.
But others see a more substantial slackening in pace.
The Organisation for Economic Cooperation and Development said India is expected to expand about 7% in 2008 and 2009 before recovering to above 8% in 2010 as world growth picks up.