New Delhi, Nov. 30: The economy grew 8.9 per cent on a year-on-year basis in the second quarter of the current fiscal, the slowest since the fourth quarter of 2006-07.
Analysts said a higher interest rate regime and a stronger rupee had put brakes on manufacturing and exports during the period.
A senior official in the department of economic affairs said the lower growth was consistent with the objectives of the Reserve Bank of India’s monetary policy. The central bank “sought to slow the scorching growth pace which many felt could result in a burnout.”
If this trend persists, it will give the cue to the central bank to soften lending rates, the official said.
Finance minister P. Chidambaram said he expected the growth rate for the fiscal to be less than last year. This is because of a turbulent financial market, a possible slowdown in global output, the tight monetary policy and high oil prices
“Overall growth has moderated. As predicted, growth is close to 9 per cent ... I am confident it will be pretty close to 9 per cent this fiscal,” he said.
The second-quarter growth was driven mainly by services, which grew 10.2 per cent. Farming, which accounts for nearly a fifth of the gross domestic product, expanded 3.6 per cent against 3.8 per cent in the first quarter.
Manufacturing, a major contributor to growth in the past four years, grew 8.6 per cent in this quarter against 11.9 per cent in the first quarter.
Manufacturing growth slowed on the back of the tight money policy.
The Reserve Bank had raised interest rates five times between mid-2006 and March this year but left them unchanged in its last review in October.
It has also increased reserve requirements by 2.5 per cent since December to check credit growth and cool inflationary pressures.
D. Joshi, principal economist at Credit Rating Information Services of India Ltd (Crisil), said, “The current slowdown was already indicated by the industrial figures over the last two months ... the reason is of course the tight money policy adopted by the RBI.”
Crisil expected growth to slow down further to 8 per cent by the fourth quarter.
Growth has averaged 8.6 per cent in the past four years, which has attracted global investors, fuelled a stock market boom and encouraged firms to expand capacity.
The inflation rate moved up to 3.21 per cent for the week ended November 17 against 3.01 per cent in the previous week. “Commodity prices are high and it does have a bearing on inflation,” Chidambaram said. “We have taken fiscal and monetary measures to keep a check and going forward inflation will remain at the current levels.”
Inflation stood at 5.56 per cent a year ago.
While most food products turned expensive, prices of fruits fell 0.3 per cent and pulses 0.8 per cent.
Prices of vegetables rose 3.4 per cent, condiments and spices by 0.4 per cent, pulses by 0.4 per cent and eggs, meat and fish by 0.4 per cent.