It appears that the Indian economy difficult times will continue for at least a while A continuing decline in India’s growth rate is foreseeable on the basis of statistics available so far in 2011, and other economic indicators are stubborn.

New data releases show Indian economy difficult times

The September release of GDP data for the first three months of India’s 2011-12 fiscal year (which is the second quarter of the current calendar year) shows growth at the lowest level since the third quarter of 2009, and down from last quarter, which was down from the quarter before; and the lowest in eighteen months. The current 7.7% GDP growth rate was established on the basis of correcting figures from a year ago to a lower level than first reported.

Construction is down 4.5%. Automobile sales are down throughout the summer, suggesting a general contraction in consumer demand, as steel and rubber prices have risen 20% over the past year. This inflationary pinch is felt throughout the manufacturing sector. August consumption of oil products rose only 3.2% over the level a year ago, down from July’s 3.8% year-on-year figure, also signalling a deceleration in growth.

Agriculture is, in the words of Rajiv Kumar (secretary-general of the independent Federation of Indian Chambers of Commerce and Industry), writing in The Hindu, a “silver lining” although “its growth may not be sustained.” Yet Indian real estate faces a cash crisis, and there are fears that Indian banks will be adversely affected by an increasing number of bad loans.

Overall exports are exceptionally strong, but that may well be due to a weakening rupee that brings its own set of problems. The rupee has depreciated 9.3% against the US dollar this quarter, and has declined 6.7% so far this month alone, standing at 49.25 to the dollar in early morning Thursday trading, though this is below the Monday high of 49.67. It is strongly indicated that the Reserve Bank of India (RBI) would intervene to “smooth” this volatility.

Banking and currency problems reinforce Indian economy difficult times

RBI deputy governor Subir Gokarn called the rupee’s movements “a matter of some concern” even while making the case that this was a global phenomenon with which conditions in India had little to do. “Infusing dollars,” he said, as reported by Bloomberg News, “is something we would consider.” The exchange level of 50 rupees to the dollar is psychologically important.

Inflation remains stubborn with food prices, for example, up 10.1%. Gokarn estimated that it would stay around 9-10% until at least November. Yet the RBI less than two weeks ago has already raised interest rates for the twelfth time in the last year and a half. Continuing rate hikes will discourage investment and other indicators and do nothing to provide a recovery of the GDP growth rate.

On Tuesday, RBI governor Duvvuri Subbarao, speaking in New York, indicated a preference for a maximum 6% inflation rate, otherwise “you can’t … have higher growth.” Wholesale price inflation reached 9.8% in August. Pressure for monetary tightening remains, and public comments by RBI figures have indicated disappointment in the government’s failure to tighten fiscal policy, thus weakening the battle against inflation. More than one commentator has already raised the specter of stagflation.

The government’s response to the delicate economic situation is complicated by an unsettled situation in the country’s highest political ranks. The president of India’s ruling Congress Party, Sonia Gandhi, returned to India three weeks ago from a trip to the US for medical reasons that remain publicly undisclosed, although it has been revealed that she underwent surgery there in late July. She has since resumed political duties, but the absence of information over her illness has clouded the overall political situation.

Hopes for surmounting Indian economy difficult times

The veil, however, may slowly be lifting. Just yesterday the Indian media reported that she was operated at New York’s Sloan-Kettering Cancer Center, by coincidence, according to rumor, under the care of a doctor of Indian origin. She is now 64 years old, and her family’s political dynasty no longer commands, in the well-put words of two Reuters reporters, the “reverential awe” that it once did.

At the same time, various political and economic corruption scandals are starting to immobilize the necessary of work of some institutions of government, or at least major figures in them. The scandals are also blemishing India’s image in the eyes of foreign investors, to such a degree that the country’s business leaders have launched a “Credible India” campaign to counter the bad publicity.

On the financial front, the bellwether BSE Sensex 30 stock market index in Mumbai closed Wednesday at 16,446, in the middle of a persistent and well-marked downtrend channel that began early last November after it had barely topped its previous all-time high, set in January 2008, by closing at 21,005. That is a decline of 16.9% in just under eleven months; a month ago it was down as low as 15,849, almost 20% from the top. There remains good medium- and long-term support around the 16,000 level.

[A redacted version of this text was published by Asia Times Online.]