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Economy slows down in third quarter

Unni Krishnan

India's economy lost pace in the third quarter as growth eased to 5.7 per cent on the back of a weaker manufacturing sector. Economists forecast that this slowdown would continue into the final quarter.

Growth was 6 per cent in the earlier year. The figures pointing to a third straight year of slower growth for the world's second most populous country came as no surprise on top of a raft of earlier disappointing economic data, economists said.

"The figures are along expected lines with the advance GDP estimates indicating overall slower growth for the whole year," economist Shanshaka Bhide with the New Delhi-based National Council for Applied Economic Research said.

Statistics released by the Central Statistical Organisation (CSO) on Friday estimated that the manufacturing sector grew by 6.1 per cent in the third quarter, down from 7.1 per cent a year earlier.

"I expect the decline in the manufacturing sector output to continue in the fourth quarter," said Vasan Shridharan, regional economist at Standard Chartered Bank, Singapore.

The services sector, too, slowed to 9.3 per cent from 10.8 per cent in the year earlier period.

The only silver lining was the farm sector output, which grew by a year-on-year 1.2 per cent in the third quarter compared with a fall of 1.1 per cent in the same period a year earlier.

The figures were in line with India's annual economic survey released in February, which projected GDP growth of 6 per cent for 2000/01 (April-March), down from 6.4 per cent a year earlier.

The economy has been hit by a triple whammy of higher global oil prices, a weak rupee and easing of import restrictions, after expanding by more than 7.5 per cent for three straight years in the mid-1990s.

A key economic indicator released earlier this month showed that growth in six major sectors shrank by an overall 1.4 per cent year-on-year in February.

The infrastructure industries index which spans electricity, coal, steel, petroleum, refining and cement had jumped by a robust 11.3 per cent in the same month a year earlier.

Analysts said that the trend was likely to continue in the coming quarter due to overall negative sentiment. "The other figures released for the first two months of the fourth quarter point to slower growth," Bhide said.

Finance Minister Yashwant Sinha presented a market friendly budget for 2001-02 last month to perk up the economy, announcing a "second generation" of reforms.

He said that the government would change labour laws to make it easier for some companies to dismiss workers, streamline taxes and step up privatisation to build on India's first wave of economic liberalisation launched in the early 1990s.

But economists say that an arms bribery scandal engulfing the government could slow down the reform process by making it more vulnerable to the demands of its coalition partners who oppose economic reforms.

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