GDP grows at 6.9% in Q2; FM pegs FY\'12 expansion at 7.3%

NEW DELHI 30/11/2011(Tehelkanews):

India\'s economy grew at its weakest pace in more than two years in the quarter that ended in September, revealing the heavy toll that stubbornly high inflation, rising interest rates and crisis-hit global capital markets are having on Asia\'s third-biggest economy.



Weakness in the second quarter was broad-based, with manufacturing growing at only 2.7 per cent and mining contracting 2.9 per cent, and reinforcing the view that the central bank will have to stop its tightening policy.



GDP growth at 6.9%: Slowdown indications strengthened? Experts say



Gross domestic product growth fell to 6.9 per cent in the second quarter of the financial year, slipping below 8 per cent for the third straight quarter.



\"Taking into account the trend of the last two quarters, I expect the GDP growth to be 7.3 per cent (in 2011-12),\" Finance Minister Pranab Mukherjee told reporters. The economy grew by 8.5 per cent last financial year.



A poll of 11 leading economists had predicted that the gross domestic product in Asia\'s third largest economy will grow at an average 7% in the three months to September. The economy grew at 7.7% in the April-June quarter



The $1.6 trillion economy, with a population of 1.2 billion, has been hit by a confluence of factors. Inflation has been persistently high all year, policy inertia has hurt spending and industrial output and, now, capital outflows have pushed the rupee to new lows.



Thirteen interest rate increases have failed to arrest inflation, which is close to double-digits.



While the Reserve Bank of India (RBI) has indicated the low possibility of another rate increase, some market experts say they won\'t be surprised if there is another tightening in mid-December.



The Indian economy grew at 8.5 per cent in 2010/11. \"It\'s more or less in line with our expectations, and we\'re expecting it to stay around this level of 7 per cent for the remaining quarters of this financial year,\" said Indranil Sengupta, an economist at the Bank of America-Merril Lynch in Mumbai.



The manufacturing sector, which contributes nearly 16 per cent of the country\'s GDP, grew at 2.7 per cent in the September quarter, data showed. This compares with 7.8 per cent a year ago, and 7.2 per cent in the previous quarter.



Farm output rose an annual 3.2 per cent for th e same period, down from its previous quarter\'s 3.9 per cent growth .



Economists said the rising costs of funds and policy paralysis in government are weighing heavy on growth. These and the escalating debt crisis in Europe are likely to push growth below the trend, they said, adding that the coming months will be crucial in determining the growth trajectory.



\"The coming months need to be carefully watched...There can be an uptick in industrial production in the second half of the year as it is the busy season,\" said Madan Sabnavis, chief economist at CARE. Several of the economists polled said the manufacturing sector, which accounts for approximately 15% of the GDP, will be the biggest drag on growth.



The index for industrial production, which measures growth in factory output, generation of electricity and production of minerals, grew at an average 3.1% over the second quarter.


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