05/30/2008, 00.00
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Economic growth slowing down as rate of inflation catches up

Agriculture is the most affected sector with hundreds of millions of people facing hardships, who might turn against the government in next year’s elections. Experts say if the growth slows down India will not be able to reduce poverty.

New Delhi (AsiaNews/Agencies) – India's economic growth was at its weakest pace since 2005 expanding “only” at 8.8 percent in the first three months of this year, India’s statistics office said in a statement today. India's inflation rate, which accelerated to 8.1 percent in the week to May 17, doubled in the past four months reaching its highest point since 2004, the more worrisome since it is fuelled by energy and food costs.

In order to contain prices the government scrapped import duties on edible oils, steel products and banned the export of cement, pulses, rice, wheat and edible oil.

Is also forcing refiners to sell fuels below cost to cushion consumers and contain inflation but at a high cost in subsidies.

The situation explains why voters are turning against Prime Minister Manmohan Singh and his ruling Congress Party-led coalition government, which suffered nine setbacks in 11 provincial polls held since January 2007 and will face federal elections in May next year.

Given the situation the Reserve Bank of India (India’s central bank) has increased the proportion of deposits lenders must set aside in order to slow money supply and cool inflation; it has also held interest rates at a six-year high. But this has discouraged consumer spending and (especially foreign) investment.

The finance ministry yesterday eased companies' overseas borrowing rules to spur investments. But growth may slow further to about 8.5 per cent in the current financial year, Finance Minister Palaniappan Chidambaram said.

Despite the apparent gloom at this rate India’s growth would still be second highest after China.

“Reining in inflation at the cost of growth is an unviable justification,” Sanjay Peters, an economics professor, told Bloomberg. “Growth is important to cut poverty in India.”

Growth in agriculture slowed to 2.9 per cent, far below inflation, negatively impacting the hundreds of million of small farmers who earn a living from the land.

The government has been criticised for ignoring and investing inadequately in the farming sector. By contrast its efforts in construction, building new airports, roads and power plants, has allowed the sector to gain 12.6 per cent.

Manufacturing growth is also facing some difficulty with its growth halved to 5.8 per cent. (PB)

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