Mumbai: Reacting to the slowest quarterly economic growth in nine years, shocked corporate leaders called for swift remedial action from the Congress-led United Progressive Alliance government.
The March quarter gross domestic product (GDP) came in far lower than modest expectations, and was announced at the end of a month that saw the rupee tumble to new lows as foreign investors pulled money out of India.
Economists expected a 6.1% gain, according to the median of a Bloomberg News survey of 31 estimates. The Indian economy grew at 5.3% in the quarter, the Central Statistics Organization said on Thursday.
“It’s a wake-up call, a shock. But it could be predicted considering that there is no positive news or action from the government. It reminds me of the crisis India faced in 1990-91,” said Harsh Mariwala, chairman and managing director of Marico Ltd. “It (government) needs to change its thinking that India will grow at 6-7%, whatever happens. That is no longer true. Retrograde amendments, delay in policy making, telecom spectrum pricing—there is virtually something of concern across every sector causing negative perception. It’s time for reform.”
“New capacities are not being created and fresh investments have stopped, due to which manufacturing growth and overall GDP growth have come down,” said Keki Mistry, vice-chairman and CEO, HDFC.
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“I do not understand why the services sector has not lived up to its usual growth rate of around 9%. Growth of the services sector is important as a lot of job creation happens there. India should have benefited from commodities like crude (oil) turning cheaper globally. But inflation hasn’t receded much due to the rupee-dollar situation,” said Mistry.
Manufacturing growth contracted 0.3%.
B.N. Kalyani, chairman and managing director of Bharat Forge Ltd, expressed concern about the weak manufacturing data. “Everyone has been talking for over six months now about what needs to be done. There is no simple formula but there is need for fast decision making. The government needs to take action, we need more investment from abroad, inflation needs to be checked. The rupee could sink further, it will be even more inflationary.”
The rupee fell to a record low of 56.515 to the US dollar on Thursday.
“We need to find ways to arrest the decline of the rupee. Speculators, who are shorting the rupee, should be taken out of the market so that confidence in the local currency returns,” said Mistry.
Chandrajit Banerjee, director general of industry lobby group Confederation of Indian Industry (CII), said the Q4 GDP figures have reconfirmed that “the economy is in the throes of a serious slowdown and is performing worse than perception”.
He called for a comprehensive economic revival package at the earliest.
U.G. Revankar, managing director of Shriram Transport Finance Co. Ltd, one of the largest non-banking financial companies in the country, said he expects the slowdown to continue over the next two quarters, but there could be some improvement in the third quarter of the current fiscal year.
Sunil Duggal, chief executive officer of Dabur India Ltd, said the government needs to take some positive actions in terms of policy reforms, attracting foreign investments and supporting long-term economic growth of the country.
“Considering the macro-economic environment and global crisis, India can grow anywhere between the 5-7% in the next two-three years,” he said.
Madhur Bajaj, vice-chairman and whole-time director, Bajaj Auto, attributed the poor GDP number to “the government’s lethargy to take decisions”.
The markets reacted predictably with the BSE Ltd’s benchmark Sensex shedding 0.57% to close at 16,218.53 points.
Sanjeev Prasad, co-head of institutional equities at Kotak Securities, said, “If we do not see any efforts by the government to restore confidence in the economy, markets could slip further. One more bout of earnings downgrade cannot be ruled out. We will not be surprised if consumption also takes a hit as discretionary spending could get affected.”
Suresh Parmar, head of institutional equities at KJMC Capital Market Services Ltd, corroborated that the long-term view on the market remains negative, unless the government gives a positive signal. “Foreign institutional investors will remain afraid to invest in India after GDP data indicated sharp slowdown in the economy. We are not seeing aggressive selling by FIIs because of the rupee weakness, but the market will not go up in a hurry unless there are meaningful reforms, fundamentals improve and global environment stabilizes. We might continue to see selling. Real estate, auto and FMCG continue to remain a defensive bet,” he said.
Ajit Ranade, chief economist at Aditya Birla Group, expressed surprise at the low agriculture growth figure of 1.7%. “It is one surprise especially given the record harvest. We expected full year GDP to be around 6.9%. Now we have to urgently increase the investment spending—both by the private and public sector since these are complementary. The pipeline of investment is large signalling the intent is there but the execution and rate of implementation is rather low,” he said.
In the short term, Ranade said the government should ensure that the targets in railway freight, electricity and coal production are met.
Sapna Agarwal, Makarand Gadgil, Gouri Athale and Shally Seth contributed to this story.