India's economy seen losing momentum ahead of election | The Daily Star
12:00 AM, February 28, 2019 / LAST MODIFIED: 12:37 AM, February 28, 2019

India's economy seen losing momentum ahead of election

India's economy appeared to be losing momentum in the approach to a general election that must be held by May, as a Reuters survey of economists forecast that growth slipped to 6.9 percent annually in the October-December quarter.

If the forecast proves accurate, India will post its slowest growth in five quarters, making it harder for Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) to persuade voters that government policies were delivering economic success.

The gross domestic product and the second advance estimates for the 2018/19 fiscal year ending in March will be released on Thursday around 1200 GMT.

Weaker domestic and external demand were key factors behind the economists expectations of sub-7 percent growth. India would still be growing faster than China's 6.4 percent growth in the same quarter, but its economy has decelerated from the more than two-year high of 8.2 percent growth posted in the April-June quarter.

The current growth numbers may look respectable, but Modi faces a criticism that he has not done enough for the manufacturing sector and create enough jobs for millions of youth entering the jobs market every month.

Growing signs of weakness in India, most alarmingly the desperation of rural communities whose income have been hit by falling prices for farm produce, forced Modi earlier this month to increase state spending, and make direct cash transfers to farmers. That could marginally help growth rates, but it will increase the government's debt.

This month, the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.25 percent, and changed its stance to “neutral” to boost a slowing economy as inflation has come down sharply.

“The economic growth slowed in December quarter following weaker consumption as reflected by auto sales and slowdown in credit after a crisis in non-banking financial company sector,” A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai said.

Prasanna said economic growth in December quarter could fall to as low as 6.4 percent. Economic growth could suffer from a possible slowdown in state spending in the two months before the election.

But, Prasanna and other analysts still expected a pick up in coming quarters due to rising private investments and consumer demand, helped by lower interest rates and a fall in global oil prices.

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