India GDP shock: A gasping elephant? Or tortoise?

Brace yourself, India. The worst is not over yet.

On Thursday, government data showed the Indian economy grew by just 5.3 percent in the March-ending quarter, the slowest pace in nine years. As a Firstpost story noted, growth could decline even further over the next six months .

Robert Prior-Wandesforde, a senior economist at Credit Suisse, probably sums up best what all of us feel right now: “It is hard to describe India’s March quarter GDP release as anything other than shocking,” he said in an investor note. He was confident the figures will “ send shivers down the spines” of senior politicians, who in turn will pressure the RBI to further slash key lending rates. (We would tend to agree, although it’s unclear whether any of those senior politicians have a spine in the first place.)

That’s a view shared by several economists. “We can’t rule out the possibility of India facing a deeper slowdown in the absence of quicker economic reforms, when the central bank has limited room to cut rates,” Samiran Chakraborty, head of regional research at Standard Chartered, told Bloomberg.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

A Financial Times blog post also noted that contrary to expectations that the economy had hit bottom in the December-ending quarter (when growth slowed to 6.1 percent), “India may still have a way to go” before hitting bottom.

It also correctly noted that poor GDP growth isn’t the only headache for India. “The GDP growth figure was simply the latest in a string of bad economic news, which now includes a current account deficit of around 4 per cent of GDP, a fiscal deficit of around 5.8 per cent, a trade deficit of 9.9 per cent; and inflation at 7.23 per cent,” it said.

[caption id=“attachment_328434” align=“alignleft” width=“380” caption=“No one is talking about 7 percent growth anymore. Six percent or thereabouts looks more like likely now.Reuters”]  [/caption]

In fact, in another recent report, the UK newspaper even referred to the economy as a ’tortoise’, which feels like a downgrade from previous comparisons of “elephant’. Even those still sticking with the ’elephant’ comparison don’t see the economy as a hardworking-but-lumbering-along creature anymore. At least for one expert, Leif Lybecker Eskesen, the chief economist for India at HSBC, India has turned into a “ gasping elephant".

Can you blame him? GDP growth is now running well below everyone’s estimates. It’s such a let-down for a nation that had once pinned its hopes on growing in double-digits irrespective of what happened to the world economy.

That painful fact was highlighted by The Economist, which expressed its disappointment over India’s growth thus: “The country was meant to grow in its sleep-regardless of what happens in the rest of the world,” it said. “A quick bounce back looks unlikely. The central bank has cut interest rates a little this year, but will struggle to loosen policy further given high inflation. The ruling coalition keeps on promising a bout of reforms to boost confidence, but it is so divided, its behaviour so erratic and its record of delivery so poor that few believe this will actually happen. Expectations for growth over the next couple of years will probably slip further, to 6 percent.”

Yes, that’s the frightening bit: no one is talking about 7 percent growth anymore. Six percent or thereabouts looks more like likely now. Clearly, there’s a total lack of confidence in where India is headed – or in the government’s determination to reverse the slide.

As Eswar Prasad, an economist at the Brookings Institution and Cornell, told The New York Times: “The latest growth numbers signal India’s deteriorating economic prospects and presage much worse to come as industrial output has stalled and investment is falling. These numbers reflect not just a loss of economic momentum but, far worse, a loss of confidence in the government’s ability to tackle the enormous short-term and long-term challenges to sustaining growth.”

To foreign and local experts, the message of India’s shocking GDP growth decline is clear: New Delhi needs to do something. Now.