Is India’s economy slowing down?

Is the Indian economy slowing down?  The numbers suggest it is, reports Outlook Business.

At 7.8%, GDP growth during the last quarter of FY11 (ended March) was the slowest in 15 months. The deceleration was largely because of a decline in manufacturing growth, which dropped to 5.5%. Not that this was sudden—factory output has been falling for a while now. After recording 15.2% growth in the quarter ended March 2010, growth dropped to 6% in the December 2010 quarter and fell to its lowest point in seven quarters in the March 2011 quarter.

What is far more worrying, though, is the near-standstill in investments—gross capital formation stood at a mere 0.4% of GDP for the March 2011 quarter. This means that even as India nears capacity for existing infrastructure, fresh capacity addition isn’t really happening. If the economy is to grow and inflation is to come down, capacity addition must take place. However, the outcry against corruption has made officials drag their feet when it comes to clearing projects. As a result, public expenditure on large projects has slowed to a crawl, and this will only add to supply side constraints.

So far, the automobile sector has been the hardest hit, the article goes on to say. But optimists believe that growth will pick up in the coming months despite continued problems with inflation and the ever increasing interest rates that the central bank has used to rein it in.