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India GDP up

August 31, 2015

India has reported strong economic growth in the latest quarter. However, analysts say growth may not be fast enough, in light of the catch-up necessary in a country where so many people remain very poor.

Indien Gateway in Mumbai
Image: picture alliance/Robert Harding World Imagery

India's statistics ministry reported on Monday in New Delhi that the country's economy had grown 7.0 percent year-on-year in the first quarter of this financial year - the three months through June. But that was down slightly from 7.5 percent GDP growth in the previous quarter, and lower than the median forecast of 7.4 percent growth in a survey of economists by Bloomberg News earlier this month.

Seven percent growth would be fast by the standards of almost any other economy, but some analysts claimed the latest GDP figures indicated the government's attempts to push India's economy onto a sustained high-growth trajectory may be faltering.

Nearly half (46 percent) of India's 1.25 billion people are under 25, and the population is growing by 1.22 percent annuallyImage: imago/imagebroker

"The GDP number shows there is no take-off in any of the key sectors of the economy," Madan Sabnavis, chief economist at Care Ratings, told AFP news agency. "The high government spending which was expected to provide the boost isn't being reflected in the numbers."

India's government changed the way it calculates GDP in January. It now uses a revised formula for the calculation, with officials saying the new method conformed more closely to international standards

Modi magic fading?

Prime Minister Narendra Modi won a landslide election in 2014 on a promise to reform and revive the Indian economy and create millions of jobs for the burgeoning population of young adults. However, many of Modi's proposed reforms have stalled in India's parliament, where his Bharatiya Janata party (BJP) lacks a majority.

India - A Country in an Optimistic Mood

05:30

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One sign that India's economy isn't as robust as had been hoped is a slowdown in the real estate development sector. There's a backlog of about 700,000 unsold homes. Across India, housing starts fell 40 percent in the first half of the year, according to consultancy Knight Frank

"The slowdown in the construction sector is very, very depressing, which will have a negative impact on overall GDP growth numbers," Samantak Das, chief economist at Knight Frank India, told Reuters news agency last week.

Anxiety over Bihar state election

On August 18, Moody's rating agency cut India's growth forecast to 7 percent for this fiscal year, against the government's target of 8 to 8.5 percent. The most recent quarter's growth figure suggests Moody's projection may be closer to the mark than the government's, at least so far.

Moody's cited increased drought risks as its main reason for reducing its growth forecast by half a point. A drought can simultaneously lower GDP growth, raise inflation, and add to fiscal pressures. That in turn can increase the cost of borrowing money from international capital markets.

Homeless people in Kolkata. Some 30 percent of Indians live below the poverty lineImage: DW/S. Bandopadhyay

Bihar state has had about a third less rain than usual this year, and that has hit its economy. The slowdown in the state of Bihar is particularly bad news for Prime Minister Modi. Bihar heads to the polls this year, and the BJP must win the state election in order to gain additional seats in the upper house of Parliament - where the BJP currently lacks the majority it needs in order to pass economic reforms.

Bihar is a desperately poor state of more than 100 million people, occupying a vast plain bisected by the Ganges river in northern India. Ironically, a poorly performing economy could lead to disillusionment with the BJP and to the party's loss of the coming state election - which would allow the rival parties who are preventing an economic surge by blockading reforms in Parliament to continue to impede progress.

nz / uhe (AFP, Reuters)

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