Can this economy be saved? India’s GDP growth slows to 5.3%, rates not seen since post-Lehman collapse

November 30, 2012
November 30, 2012

India’s economy is on track to turn in its worst year of performance in a decade. Gross domestic product (GDP) grew 5.3% between July and September from a year earlier,the government reported today.

This marks the third quarter of below-6% growth. The last time was after Lehman Brothers collapsed.

But wait, there’s good news.

The rupee made gains, taking back four weeks of losses to gain 2.3%, marking its biggest weekly gain since early July. This is a positive sign for exporters who do everything from make manhole covers to code software. The currency was helped by capital investment presumably keeping faith in government reforms. As Quartz reported last week, Parliament has been in a logjam over foreign direct investment in multi-brand retail, and a recent corruption scandal at Wal-Mart is hardly helping matters.

Economists also are clinging to the “things can’t get any worse” scenario, saying the next fiscal year should be better. In Mint, columnist Niranjan Rajadhyaksha says to keep hope alive for at least three reasons:

…lower global oil prices could take some pressure on the twin deficits, as both the import bill and the fuel subsidy bill fall. A second factor could be lower interest rates. India has definitely not won the war against high inflation (irrespective of whether you look at the moving trend in the inflation indices or the GDP deflator), but something like five quarters of growth below what the Reserve Bank of India believes is the potential growth rate for India will make the case for at least mild interest rate cuts more attractive. A revival in corporate investment spending is key to the recovery.

The unknown factor, he concedes, is whether the reforms will actually happen or remain as stuck as they have for year. Investors can only hold out hope for so long.

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