India’s growth falls to a worse-than-expected 7.1% in blow to PM

Business sentiment has been hit by a credit squeeze sparked by a series of defaults

India’s economic growth slowed to 7.1 per cent in the second quarter, official data showed yesterday, as its banks endure a liquidity crunch that is hampering investment in Asia’s third-largest economy.

GDP expansion missed the rate experts say India must consistently hit, if Prime Minister Narendra Modi — up for re-election next year — is to fulfil his pledge of creating millions of jobs.

Central Statistics Office figures showed GDP growth for July to September of the 2018-19 financial year slowed from 8.2 per cent in the previous quarter. Despite the slowdown, latest figures were up from 6.3 per cent for the same period last year and reinforce India’s status as one of the fastest-growing economies.

However, analysts say the country needs to regularly record at least eight per cent growth to generate employment for the millions who enter the workforce every year.

“India needs to grow at 8 per cent or over for several years,” Ashutosh Datar, an independent economist based in Mumbai, told AFP. “Any fall in GDP figures below this will have very significant ramifications for the economy. Anything below seven per cent would potentially hamper job creation and also be undershooting our growth potential,” he added.

Moody economy

In 2014, Modi swept to power on a business-friendly manifesto, including a pledge to create 10 million jobs a year.

India does not release officials jobs data but the opposition Congress party accuses the government of failing to meet the target and is making an issue of it ahead of the 2019 general election. “These GDP figures are an indicator of the mood of the economy,” said Sujan Hajra, an economist at Anand Rathi securities. “Any fall in the numbers will increase scrutiny and dent the public perception.”

Business sentiment has been hit by a credit squeeze sparked by a series of defaults by debtladen IL&FS, a non-banking financial institution responsible for huge investment in infrastructure projects.

The defaults have shone a spotlight on India’s “shadow banks” and led to billions of dollars in loans drying up.

They are also reportedly the source of a dispute between the government and India’s central bank, the Reserve Bank of India (RBI).

The finance ministry has been pushing the RBI to ease lending norms at mainstream commercial banks to boost loans for small businesses and also help meet shortfalls caused by the near collapse of IL&FS.