India’s growth slowest in a decade

India’s economic growth began a feeble recovery at the tail end of a 2012 fiscal year that saw the slowest expansion in a decade, providing little relief for a government heading into a busy election period dogged by graft scandals and criticism of its economic management.

Asia’s third largest economy grew 4.8 per cent from a year earlier in the January-March quarter, in line with expectations.

The showing in the March quarter was only slightly better than an upwardly revised 4.7 per cent growth in the previous three months, which was the lowest in fifteen quarters.

The full year economic growth for the fiscal year 2012/13 came in at 5 per cent, in line with an official forecast given in february, but its worst in a decade, and a far cry from the 9 per cent annual expansion recorded until two years back. "The sectoral performance affirms our expectations that while GDP growth remains subdued, a floor is in sight, but lacks signs of sustainable pick up in momentum," said Radhika Rao, an economist at DBS in Singapore.

The data dampened market hopes for another interest rate cut at the central bank’s policy review on June 17th.

The Reserve Bank of India’s (RBI) has cut its policy rate by a total of 75 basis points since January to spur economic recovery.

India’s benchmark 10-year government bond yield rose to two week high of as much as 7.49 per cent as hopes of another rate cut faded after the GDP data came in line with expectations.

RBI governor Duvvuri Subbarao has warned that upside risks to inflation and a high current account deficit have limited room for more monetary easing even though inflation is on a downward trajectory and economic growth remains weak.

The government data showed that the manufacturing sector grew an annual 2.6 per cent in the March quarter. The farm sector expanded 1.4 per cent from a year earlier.

Mining sector, meanwhile, contracted an annual 3.1 per cent. The services sector, that makes up more than half of India’s economy grew an annual 6.6 per cent in the March quarter. Worryingly, annual capital investment growth slowed down to 3.5 per cent in the March quarter from 4.5 per cent year-on-year a quarter ago.

Years of fiscal profligacy, a long struggle with high inflation, high interest rates, persistent political gridlock and fragile global economy have put India back in a rut.