Contracting industrial output and an investment slowdown dragged India’s economic growth to a worse-than-expected 4.7 per cent in the three months to December, the last major data release before a general election showed on Friday.
The performance of Asia’s third-largest economy fell short of the 4.9 per cent growth that had been expected in a Reuters poll of economists, and decelerated fractionally from the prior quarter.
“This does not give much confidence,” said Sujan Hajra, chief economist at Anand Rathi in Mumbai, of the data. “This is disappointing, but in line with the trend for past several quarters.”
Growth has slowed to half the rate of the boom years of the past decade, likely condemning Prime Minister Manmohan Singh’s government to defeat in a general election expected to be held in April and May.
Singh had sought to unleash a wave of investments by fast-tracking approvals for $80 billion in infrastructure projects last year, but implementation has been patchy and the latest data showed no sign of a pickup.
In fact, gross fixed capital formation as a share of overall gross domestic product shrank in the December quarter to 27 per cent from 29.4 per cent in the previous quarter, measured at current prices.
The main opposition challenger for prime minister, Narendra Modi, whose campaign is building momentum, has meanwhile shifted to a more pro-growth stance, saying India needs a strong government to attract foreign investment.
“From the government’s perspective, obviously it’s not very good news for them, but the fact is there’s not much they can do right now as they are getting into election mode,” said fund manager Badrish Kulhalli.
“A lot will depend on the shape of the new government and the priority in policies,” added Kulhalli, who works at HDFC Standard Life Insurance Co.
Manufacturing shrank by 1.9 per cent, in real terms, turning negative after a 1 per cent gain in the previous period. Mining and quarrying also did worse, shrinking by 1.6 per cent.
Economists had expected improved farm output to contribute to a slight pickup in overall growth, but the year-on-year pace of growth in agriculture, forestry and fishing slowed to 3.6 per cent from 4.6 per cent in the prior quarter, the data showed.
“Agriculture and industry have both disappointed. With this kind of third quarter numbers, the overall growth for the year looks likely to average around 4.6 per cent,” said economist Anubhuti Sahay at Standard Chartered bank in Mumbai.
Elevated borrowing costs have added to manufacturers’ woes after the Reserve Bank of India (RBI) hiked interest rates three times between September and January to curb stubborn inflation which has showed no signs of easing even as growth tumbled.
While wholesale inflation did slow to an eight-month low in January, the fall was driven by softer food and vegetable prices, which are considered volatile and could head higher again.
The latest figures will make it hard to hit the government’s forecast of 5 per cent in the fiscal year that ends in March. It forecasts a recovery in growth to near 6 per cent for the fiscal year 2014/15.
“From a policy point of view, RBI is focused a lot more on CPI inflation and they have sort of factored in 4.5 to 5 per cent GDP growth for this year, so from that perspective I don’t think RBI will make any changes,” said Kulhalli.