The slowdown in India's economy in 2011 was worse than expected. The data that the New Delhi government released today showed that India is too relaxed. The Indian economy grew by only 6,5% in the fiscal year which ended on March 31, compared to 8,4% last year. The sectors, which showed the worst performances, were manufacturing, mining and agriculture. Forecasts for the future are not reassuring. Indeed India's GDP increased by 2012% in early 5,3, the lowest rate in 9 years and against 9,2% in the same period of 2011. The Central Bank expected a slowdown (+7%) due to the contraction in private sector investment and the European debt crisis, but the numbers were decidedly worse than expected . Last week, the main American investment banks revised their GDP estimates for 2013 downwards, but nonetheless expect growth above 6%.
India's problems don't end there. There rupee hit a six-month low and continues to be weak despite the various measures implemented by the Central Bank to strengthen it. The Fiscal deficit ballooned to 5,7% and the current account deficit is at 4% of GDP. The last sore point is inflation hovering around 7% due to high fuel prices and the high costs of food and fertilizer subsidies. Given these numbers, it is evident that both fiscal and monetary policy have little room to stimulate growth.
Ma the real evil of India is politics, the slowness of the bureaucracy, the rampant corruption and the uncertainty about the tax regime. The sharp drop in foreign direct investment (FDI) in the country seems in fact due to this. After the wave of scandals that have swept over the main coalition government, the Indian Parliament is in a state of paralysis. Key reforms to boost foreign investment (allowing foreigners to enter the retail market and facilitating land purchase regulations to develop infrastructure projects) remained locked.
In fact, industries that do not need state licenses or concessions, such as pharmaceuticals, information and technology or consumer goods continue to thrive. The vertigo of distrust is growing instead in all sectors related to the government (mining, construction and manufacturing), where India desperately needs to invest to stimulate growth. Over the past year, the stock of foreign direct investment (FDI) has totaled only 16 billion dollars, half compared to 30 billion in 2010/2011. And the trend does not seem to be reversing, also because until 2014 no replacement is expected at the top of the largest democracy in the East.
