India's Growth Rate Slows Further In Q2 2008

In the second quarter of 2008 (the first quarter of the financial year) India’s economy grew at it slowest rate in three years, as the Reserve Bank of India struggles to control record high inflation by applying tight credit conditions. Annual growth slowed to 7.9 per cent in the quarter of 2008 which ended on June 30, significantly lower than the 8.8 per cent rate reported for the January to March quarter. Click to enlarge:


Growth momentum has obviously been slowing on tighter monetary policy and the adverse global environment. Higher interest rates, slower bank credit growth and higher oil and commodity prices are evidently now having a marked effect on activity levels in the Indian economy. However, in spite of the slowdown, the growth rate of Asia’s third largest economy remains strong, and there are very positive signs of resilience in the face of what is now a global economic slowdown. China’s economic growth also slowed in the second quarter dropping to a 10.1 per cent year on year rate, from 10.6 per cent in the first quarter.

Despite this slowing growth the Reserve Bank of India is very likely to maintain its tight policy stance until it succeeds in bringing inflation down significantly from the current double digits level. Inflation fell back slightly in mid-August but it may well tick up again before the year is out.

Growth in the services sector, which includes banking, transport and leisure, and the construction sector remained strong at 10 and 11.4 per cent respectively. The manufacturing sector suffered the sharpest fall as it grew only 5.8 per cent compared to 10.9 per cent in the same period in 2007.

Comments

[investor88:]

If India slows, China probably will also. Someone said reported growth in China is overstated, the market's verdict says it is since the Chinese equity index has dropped 60% in the past year. Someone said the market is "the boss", there is some truth there. For long momentum players, it is time to observe carefully the topping out process.

2008 Aug 31 10:10 AM

[lark:]

nine percent growing economy is not too bad.

2008 Aug 31 12:04 PM

[Guneet Sing...:]

India faces strong domestic challenges, with inflation near 16-year and fiscal deficit likely to exceed the targeted 2.5%. The central bank will surely go for another interest rate hike to contain inflation and this will be bad for the markets.

2008 Sep 01 06:52 AM

[captainjohann:]

slow down in passenger car sales is good for the economy and pollution control.But the natural disater of floods in Bihar can have bad effects on some mining sector industries.

2008 Sep 01 08:19 AM

[yank:]

Edward:
The drop in 2nd qtr from 8.8 to 7.9% does not bother me as much as the manufacturing number dropping from 10.9 to 5.8%. That is almost a 50% decline. Are there some seasonal indicators at work there that may be "skewing" the numbers? You know better than most how important manufacturing growth is to India's economy. They have to reverse that number and do it rather quickly before the downward momentum gets out of control. NIce job reporting the latest data from the Sub-continent. Thanks.

Yank

2008 Sep 01 01:35 PM

[hownow:]

Yes the direction is a bit unclear as evident :
indiaplay.blogspot.com...

2008 Sep 01 03:21 PM

[damodharan:]

7.9% growth is not bad. For 3rd Quarter 2008 we can expect GDP to go further down. Unless otherwise government concentrates on Agriculture and Manufacturing sectors by giving subsidies and taking promotional measures GDP will continue to fall for 4th Quarter also.

2008 Sep 08 06:51 AM