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Farming leads slowdown
Economy slips to 5.3% in Q3
Bhagyashree Pande
Tribune News Service

New Delhi, February 27
India's economic growth slowed sharply in the third quarter to 5.3 per cent from the same period a year ago on contracting agricultural and manufacturing output, as per the government data released today.

The reason was agriculture, which has been worst hit in the October-December quarter, falling by 2.2 per cent, the statistics showed. Manufacturing contracted marginally by 0.2 per cent compared to a growth of 5 per cent in the previous quarter.

International rating agency, Moody’s has said that India will have to revise its growth rates below the 5 per cent mark. Downgrading by international rating agencies will make borrowing more expensive and difficult for the government, observe economists.

The government, in the recently announced Interim Budget, said that India's GDP would grow by 7.1 per cent for the fiscal year 2008-09, much lower than the 9 per cent achieved the previous year.

Industry chamber PHDCCI said the numbers were a major dampener and it would further erode investor confidence and depress the business environment in the economy.

The chambers said it was worrisome that there was deterioration in economic activity in all three sectors - with agriculture, industry and some services showing a sharp deceleration in performance.

The government said earlier this month that the budget deficits would more than double to 6 per cent of the GDP, as it borrows record amounts to finance stimulus measures.

Ficci president Harsh Pati Singhania said, “While the agriculture sector and the manufacturing sector, which account for over a third of the economy, have contracted, perceptible slowdown is seen even in most of the services segments such as construction, trade, hotels, transport and communication.”

It says that such a declining situation, when taken together with burgeoning fiscal deficit, subdued capital markets and brought fluctuations in the value of the rupee.

The rupee also fell against the dollar to a new low of Rs 51.17 on the concern of declining exports. This will widen the nation’s current-account deficit, increasing demand for dollars to fund the shortfall.

Exports shrank an average 7.7 per cent a month last quarter and imports grew 8.5 per cent.

Foreign exchange reserves dropped to $245 billion as per the latest data released by RBI, from a record $316.2 billion reached in May 2008.

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