India growth stuck at 3-year low as reforms stall

[November 30, 2012]  MUMBAI, India (AP) -- India's economic growth slid to 5.3 percent in the September quarter, stuck at its lowest levels in three years as New Delhi struggles to enact reforms to kick start Asia's third-largest economy.

The number released Friday by the government was in line with expectations that the second quarter of the fiscal year was lackluster. A weakening economy complicates New Delhi's effort to create jobs for its exploding youth population and balance the budget, while paying for costly social programs in advance of national elections scheduled for 2014.

India is struggling with high inflation and high interest rates, coupled with a wide fiscal deficit, weak currency, and uncertain policy environment, which have hit both consumption and investment.

"The country is marred by the investment slowdown," said Madhavi Arora, an economist at Kotak Mahindra Bank. "The investment story has not improved in the last two and a half years. It is worsening each and every quarter."

She said she expects growth for the fiscal year ending March to be 5.6 percent. That would be the country's worst annual performance since 2003, according to FactSet.

New Delhi has been at pains to attract foreign capital and avoid a ratings downgrade, announcing ambitious reforms that are now foundering in Parliament. The ruling Congress Party's headline effort to ease restrictions on foreign investment and allow companies like Wal-Mart to open supermarkets here sparked fierce resistance from opposition politicians, who shut down Parliament over the issue, casting further doubt on the government's ability to execute policy reforms.

While New Delhi's initiative on reform has boosted the stock market, economists are divided over how much the policy overhaul will help the real economy in the near term. Even if New Delhi manages to push through liberalization measures it's not clear whether foreign investors will take advantage of greater access to industries such as aviation, retail and insurance given India's other looming uncertainties.

"All these so-called reforms are more of a euphoria driven thing rather than an actual impact on the economy," Arora said.

India's economy grew 5.5 percent during the June quarter, after expanding by 5.3 percent in the March quarter. This is the slowest pace since the global recession, which dragged India's economic growth down to 3.5 percent for the January to March quarter of 2009.

[Associated Press; By ERIKA KINETZ]

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.