India growth holds below 5% as policy logjam hurts economy

Economy has floundered as protests over alleged graft in government disrupted parliament, impeding bills seeking to lure foreign capital, simplify taxes and provide more land for industry.

 India’s economy expanded less than 5% for a second straight quarter as Prime Minister Manmohan Singh struggled to revive investment, adding pressure for further government policy changes to spur growth. Stocks slid.

Gross domestic product rose 4.8% in January to March from a year earlier, up from a revised 4.7% the previous quarter, the Central Statistical Office said in New Delhi today. The report matched the median of 33 estimates in a Bloomberg News survey. GDP climbed a decade-low 5% in the 12 months ended March, below the 10-year average of about 8%.

Singh’s eight-month push to boost the economy has in recent weeks floundered as protests over alleged graft in government disrupted parliament, impeding bills seeking to lure foreign capital, simplify taxes and provide more land for industry. At the same time, a record current-account deficit is constraining Indian monetary easing as the global recovery falters.

“Growth is weak and I am skeptical about a sharp bounce- back anytime soon,” said Radhika Rao, an economist at DBS Bank Ltd. in Singapore. “The Reserve Bank of India will be cautious about retail inflation and the high current-account deficit.”

The S&P BSE Sensex index tumbled 2.3%, the most in 14 months. The rupee fell 0.2% to 56.505 per dollar, the weakest level since June last year. The yield on the 8.15% bond due June 2022 was little changed at 7.44%.

Interest Rates

The Reserve Bank will probably cut interest rates at most by 25 basis points in the rest of 2013 as the current-account gap weighs on the rupee, UBS AG said this week. The shortfall reached 6.7% of GDP in October to December.

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