Indian economic growth at one year low on inflation, Ukraine war

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The economy’s near-term prospects have darkened due to a spike in retail inflation, which hit an eight-year high in April.

India’s economic growth slowed to the lowest in a year in the first three months of 2022, hit by weakening consumer demand amid soaring prices that could make the central bank’s task of taming inflation without harming growth more difficult.

Gross domestic product grew 4.1 percent year-on-year in January-March, government data released on Tuesday showed, in line with a 4 percent forecast by economists in a Reuters poll, and below 5.4 percent growth in Oct-December and growth of 8.4 percent in July-Sept.

The economy’s near-term prospects have darkened due to a spike in retail inflation, which hit an eight-year high of 7.8 percent in April. The surge in energy and commodity prices caused partly by the Ukraine crisis is also squeezing economic activity.

“Inflation pressures will remain elevated,” V Anantha Nageswaran, chief economic adviser at the finance ministry, said after the data release, adding that the risk of stagflation – a combination of slow growth and high inflation – was low in India.

Rising energy and food prices have hammered consumer spending, the economy’s main driver, which slowed to 1.8 percent in the Jan-March period from a year earlier, against an upwardly revised growth figure of 7.4 percent in the previous quarter, Tuesday’s data showed.

Garima Kapoor, an economist at Elara Capital, said a slowdown in global growth, elevated energy prices, a cycle of rising interest rates and a tightening of financial conditions would all be key headwinds.

She revised her annual economic growth forecast for the current fiscal year that started on April 1 to 7.5 percent from an earlier estimate of 7.8 percent.

India’s government revised its annual gross domestic product estimates for the fiscal year that ended on March 31, predicting 8.7 percent growth, lower than its earlier estimate of 8.9 percent.

This month, the Reserve Bank of India (RBI) raised the benchmark repo rate by 40 basis points in an unscheduled meeting, and its Monetary Policy Committee has signaled it will front-load more rate hikes to tame prices.




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