Below-average rainfall caused slowdown in India’s economy growth

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Thursday March 31, 11:22

Below-average rainfall caused slowdown in India’s economy growth

(by Helen Snow)

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Below-average rainfall caused slowdown in India’s economy growth

Below-average rainfall reduced harvests and caused the slowdown of India’s economy growth.

Despite the fact that India is overcoming its dependence on farming, as services including software and banking now account for 51% of its economy, it could not help avoiding the losses caused by the second-lowest rainfall in 17 years. As a result, farm output shrank 1.1%.

However, other economical factors still look better. Gross domestic product expanded 6.2 % in the three months to Dec. 31. Manufacturing expanded at a record 10.4 % pace.

Finance Minister P. Chidambaram wants to keep interest rates at a three-decade low to fuel growth of more than 7 % a year to provide 350 million poor Indians, who mainly depend on farming. This adds pressure on the central bank to raise borrowing costs, said investor Rajiv Shastri.

``Manufacturing growth in two digits is a concern,’’ said Mahendra Jajoo of ABN Amro Asset Management in Mumbai. ``This has pushed bonds down a bit because you will see more loans being taken by companies to expand production.’’

The increase of corporate earnings has lifted the benchmark Sensitive stock index by 16 % over the last year and stimulated big manufacturers like Hyundai Motor India Ltd. to expand factories in India. The local division of South Korea’s biggest automaker said on March 18 that it tends to invest $500 million in India by 2008 in the framework of severe sales competition with Suzuki Motor Corp. and General Motors Corp.

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