29 November 2013
Last updated at 07:27 ET
A slowdown in key sectors such as manufacturing has hurt India’s growth rate
India’s economic growth rate picked up strongly in the second quarter, according to official figures.
The economy expanded at an annual rate of 4.8% in the July-to-September period, up from 4.4% in the previous quarter.
The acceleration was faster than analysts had been expecting.
Asia’s third-largest economy has been weighed down by various factors, such as high inflation, a weak currency and a drop in foreign investment.
This is the fourth quarter in a row that India’s annual growth rate has been below the 5% mark, and the previous quarter’s rate of 4.4% was the lowest for four years.
Earlier this year, the Indian prime minister’s economic advisory council lowered the growth outlook for the current financial year.
It now expects the economy to expand by 5.3% this year, down from its earlier projection of 6.4%.
India’s economy has been hurt by a range of factors in recent months, including a slowdown in key sectors such as mining and manufacturing.
Slowing growth, coupled with a recovery in developed markets, such as the US, has made India a less attractive option for foreign investors.
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US Dollar v Indian Rupee
Last Updated at 29 Nov 2013, 18:46 ET
Speculation that the US may scale back its key economic stimulus measure has seen investors pull money out of emerging markets, such as India.
This has affected India’s currency, which dipped nearly 25% against the US dollar between January and September this year.
Though the rupee has recovered a little since then, it is still down about 13% against the dollar since the start of this year.
That has made imports more expensive and contributed to a high rate of consumer inflation, which was 10.1% October, up from 9.84% in September.
High food and fuel prices have contributed to inflation becoming “entrenched”, finance minister P Chidambaram said.
As a result, the central bank has had to raise the cost of borrowing in a bid to curb inflation.
The latest interest rate rise in October saw the key rate increase to 7.75%.
Some observers argue that high interest rates are hurting businesses and households, and having a negative impact on the economy.
“A combination of weak investment, high inflation and tight monetary policy would not let India’s economic recovery gather steam any time soon,” Miguel Chanco, Asia economist at Capital Economics, told the BBC.