India’s economic growth slumped between January and March.
GDP was up by 5.3 percent from the same period a year earlier – much lower than expected. That was the slowest expansion in nine years.
The manufacturing sector actually shrank 0.3 percent and a fall in the rupee to a record low suggests the economy remains under pressure in the current quarter.
The figures mark a dramatic slide in fortunes for a country that was growing in the years before the global financial crisis at more than nine percent.
Analyst blamed poor investment and a widening trade gap along with a lack of economic reforms and high interest rates.
Foreign investors are now wary after a series of government flip-flops on economic reform and tax, heavy government spending on subsidies and a fiscal budget deficit that is threatening the country’s investment-grade credit rating.
“This is definitely a very important signal for the government – this is a make or break situation for India and the government has to step on the panic button,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.
“If the government doesn’t step in now, India’s sovereign ratings may be jeopardised.”
Standard & Poor’s cut India’s credit rating outlook in April to negative from stable, worried by India’s fiscal and current account deficits. The decision jeopardises India’s long-term rating of BBB minus, the lowest investment grade rating.