Economic growth slows to 7.1pc as Modi prepares for re-election

NEW DELHI: The country’s economic growth fell to a worse-than-expected 7.1 per cent in the July-September quarter (Q2), dragged down by a slower consumer spending and farm growth, in a setback for Prime Minister Narendra Modi who faces a national election by May.
India’s growth is still faster than China’s 6.5 per cent in the same quarter, but the figures were a come-down from the more than two-year high of 8.2 per cent set in the June quarter.
A Reuters poll of economists had forecast growth of 7.4 per cent for the quarter.
Having swept to power in 2014 promising to galvanise the economy, Modi has been criticised for failing to create enough jobs for the more than 12 million young Indians entering the labour force each year. India needs growth of 8-per cent-plus to generate enough jobs for those workers.
The unemployment rate rose to a two-year high of 6.9 per cent in October, with nearly 30 million young people looking for jobs, according to a report released this month by Centre for Monitoring India Economy (CMIE), a Mumbai-based think tank.
Some economists expect the slowdown to stretch on to the election, or beyond — encouraging the government to raise spending and breach its fiscal deficit target.
“With elections coming up, you will see a ramp-up in spending,” said Teresa John, an economist at Nirmal Bang Institutional Equities, a Mumbai-based brokerage, who added growth could even be slower in the second half of the fiscal year.
The Statistics Ministry released data showing a decline in growth of the farm sector and consumer spending, raising fears that slower rural wage growth could hit growth in the second half of the fiscal year ending in March 2019.
The gross domestic product figure was “disappointing”, Subhash Chandra Garg, Economic Affairs Secretary, said in a tweet, adding first half GDP growth of 7.6 per cent nonetheless remained robust and healthy — still highest in the world.
On Wednesday, a government panel announced revised growth estimates that made the Modi administration’s record look better than the previous Congress-led governments.
Having estimated back in August that the Congress oversaw an average annual growth rate of 8.1 per cent during its decade in power, the Statistics Ministry revised that number down to 6.82 per cent for 2005/06 to 2011/12 period, putting it well below the 7.35 per cent average for the first four years of Modi’s term.
A fall in food prices has hit rural incomes in recent months, which in turn dampened sales of consumer durables and other products.
Farm output grew 3.8 per cent year-on-year in the September quarter compared with 5.3 per cent the previous quarter.
The construction sector, one of the biggest employers after agriculture, grew 7.8 per cent year-on-year, slower than 8.7 per cent in the previous quarter.
Several factors conspired to hold the economy back during the middle of this year, including a weak rupee and a squeeze in India’s shadow banking sector that hindered both investment and consumption. — Reuters