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Home > Investments > Emerging Markets

Indian GDP growth hits nine-year lows

Asia’s third largest economy hit by manufacturing and agriculture slowdowns and political corruption scandal.

By Nick Reeve | Published May 31, 2012 | comments

India’s economic growth has fallen below 6 per cent to its lowest level in nine years, as manufacturing and agriculture output slumped.

India’s economy grew 5.3 per cent year-on-year in the first quarter, compared with 9.2 per cent in the first quarter of 2011. In addition, industrial production and exports fell sharply in April due to falling demand for Indian goods.

Writing in the Indian Express newspaper, JPMorgan economist Jahangir Aziz said the difficulties were the result of “weak policy” and “the erosion of investor confidence” in the country’s government.

India’s coalition government has been hit by corruption scandals which have stalled key economic reforms in their course through parliament, in some cases by more than a year.

However, Franklin Templeton’s veteran emerging markets investor Mark Mobius said he was “optimistic” India would come through its challenges.

Writing on his blog, Mr Mobius said: “Over the past year, fierce protests in India have pushed corruption to the top of policymakers’ agendas. I see activism as the first step to address these problems, and I think the actions of anti-corruption activists have made great strides toward rallying public support and engaging officials.

“However, a handful of people backed by the power of social and electronic media can only influence the system so much. Inevitably the state has more power to bring about change than individuals do, so these protests must be met with action at the state level.”

Meanwhile, Brazil has cut its base interest rate to a new record low of 8.5 per cent as it looks to restore previous high levels of growth. In 2010 Brazil’s GDP grew 7.5 per cent but this rate fell to 2.7 per cent in 2011 and has shown signs of continuing at a low level through 2012.

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