Manmohan Singh, India’s prime minister, has cut his forecast for his country’s economic growth rate to 7% this year signaling a sharp slow down in the world’s fastest growing large economy after China.
Mr Singh said on Sunday that India was “going through difficult times,” alluding to a severe test of his leadership from falling growth, rising prices and a bitterly divided parliament. His acknowledgement of weaker economic performance comes weeks before elections in five states, including the political crucible of Uttar Pradesh.
Over past months, higher interest rates have throttled growth while the Congress-led government has been beset by high profile corruption scandals and an angry parliamentary opposition.
Last week, Pranab Mukherjee, the finance minister, had offered a more optimistic growth projection of 7.5% in the current fiscal year. The Reserve Bank of India is holding out for 7.6%. By comparison, growth in Asia’s third-largest economy was 8.5% last year. Policymakers had earlier expected a repeat performance.
But a policy paralysis in New Delhi has sapped investor confidence. It helped put the Sensex, the benchmark index of the Bombay Stock Exchange, and the rupee among the worst performers among global financial markets last year. “Despite an adverse international environment, the Indian economy is expected to grow by about 7% this financial year ending 31st March,” Mr Singh told a meeting of non-resident Indians in Jaipur on Sunday.
“However, we hope to bring back the rhythm of our growth processes to sustain an annual growth rate of 9% to 10% in the medium-term,” he said.
In recent days, India’s industrialists, including Ratan Tata, the chairman of the Tata Group, have urged the government to push for higher growth fearing that if performance falls below 6% recovering momentum would be difficult. Deepak Parekh, the chairman of HDFC, a state-owned bank, became one of the latest to criticize reckless governance in the world’s largest democracy. “No decisions can be taken if every item, every policy issue which the ruling party puts up is opposed by the opposition by disrupting parliament, by dislodging parliament,” he said.
Richard Iley, chief Asia economist for BNP Paribas, described the days of near double digit growth as in “the rear view mirror.” The French bank predicts only 6.5% growth for India this year as it suffers homegrown consequences of too loose monetary and fiscal policy.
Mr Singh said the global economy, which is overshadowed by concerns about the sovereign debt crisis in Europe and the recovery in the U.S., as also passing through “a difficult phase.” “Employment opportunities have declined, there is greater protectionism and attitudes towards migration have also hardened. There is growing social intolerance,” he said.