NEW DELHI — India’s economic growth has plunged to its slowest pace in a decade. While the government is struggling to revive growth, economists say any improvement will come very slowly.
The numbers released by the government Friday show that India’s economy grew by 5 percent in the financial year which ended in March.
The slide was not unexpected -- the economy has been losing steam steadily in the past year. But it is a huge disappointment for one of the world’s major emerging economies, which averaged 8 percent growth over the last decade and won recognition as an engine of global growth .
Chief economist at CRISIL Ratings Agency in Mumbai, D.K.Joshi says the economy has been hit by several factors including an industrial slowdown.
“There are many areas where the weakness has emerged, and the key area is manufacturing sector, which has not done well for last three-four years, and last year it recorded growth of 1 percent which is very, very low," said Joshi. "It is a 20-year low. And private consumption continues to remain weak and investments are yet to pick up.”
The government introduced a slew of reforms in September to kickstart the economy. These include opening up India’s retail and aviation sector to foreign investors.
But other reforms have been stalled by angry opposition parties as the weak coalition government remains mired in corruption scandals. These include bills to reduce restrictions on foreign investors in the pension and insurance industries, a bill which could make it easier to acquire land for industrial and mining projects, and tax reforms.
As a result investors, both domestic and foreign, have been postponing any substantial investments. And economists warn the government may be unable to push through any more pro business reforms before elections next May.
Economist D.K. Joshi says bureaucratic red tape, governance issues and infrastructure bottlenecks also are hurting business confidence.
“We might see some lift in growth which we expect GDP growth to go up from 5 percent to 6 percent. I think one of the critical problems we face in the economy is that private investment has slowed down substantially," said Joshi. "And private sector is more productive. Unless it revives, I don’t see growth going back to over 7 percent.”
While India’s growth remains ahead of many Western countries, it has fallen behind Asian countries such as Indonesia and the Philippines. Many blame the government for not moving fast enough to fix the problems holding back the economy.