Image via Wikimedia Commons (Paul Rudd)

India's economic growth hampered by Europe

Despite its status as one of the world's booming emerging economies, India's growth rate of 5.3% is its lowest since 2003.

by Michael Northcott
Last Updated: 20 Aug 2013

For all the talk of newly industrialising countries and their mind-blowing growth figures, it seems the economic bite of our predicament in the west is being felt in the developing world, too. India’s annual economic growth fell to 5.3% in the first quarter of 2012 compared with the same quarter last year. This is its slowest rate of growth since 2003, and is being put down to a widening trade gap, faltering investment, and the value of the rupee shrinking to a record low. 

The figures are disappointing for a country that was enjoying an annual growth rate of 9% a year before the global financial crisis took root. In fact, some speculators even whispered about the possibility of India overtaking China as the world’s top industrialising nation. 

Whilst India is Asia’s third largest economy, behind China and Japan, it has been afflicted with a massive decline in the value of the rupee – it has dropped 27% against the US dollar since July 2011 - which has made things expensive internally. What’s more, the global slowdown has massively reduced external demand for India’s exports. Before the house of cards came tumbling down, India had actually been aiming for double-digit economic growth sooner rather than later. A veritable Bombay mix of difficult circumstances, then…

It’s not just economic weather causing problems, however. Many point to the government’s inertia on economic reforms, as well as high interest rates, which have been a ball and chain to the otherwise buoyant production capacity of the country. This combination of factors has not played well with the markets: credit ratings agency Standard and Poor’s cut India’s rating from a stable to a negative outlook, a move which could jeopardise the country’s BBB minus rating (which is already the lowest rating for investments).

Nonetheless, 5.3% is a much higher rate of growth than in the UK (we have just gone back into recession, so no comparison there), and if the western machine groans back into life over the next 12 months, Asia’s fortunes may find themselves at least partially revived.

Looks like, whether in Europe or Asia, we're all just going to have to keep calm and curry on...

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