JAKARTA – India’s economy slowed in the last quarter of last year, amid rising political tensions with Pakistan and global demand slowdown.
The Hindustan country gross domestic product (GDP) in the IV / 2018 quarter rose 6.6% from the previous year. This was lower than the median estimate of 6.7% in a Bloomberg survey and fell from a revised increase of 7% in the previous quarter.
The tense tension between the two nuclear-armed rival countries has the potential to harm foreign investment and make business sentiment in the economy bleak.
Relations with Pakistan have deteriorated this week after India accused its neighbor of being responsible for a massive offensive in Kashmir. The two neighboring countries were vigorously launching air strikes against each other.
For now, Pakistan has delivered a message of peace by offering to release captured Indian pilots.
“[Tension] is coming at a difficult time for both parties, considering that India will hold elections in April-May 2019, while Pakistan is in a weak economic position,” said Radhika Rao, economist at DBS Group Holdings Ltd., Singapore .
According to him, the tension that is happening is likely to overshadow the growth data.
Not only that, the Indian economy is now facing weaker domestic demand and a global slowdown.
This might provide a reason for the Reserve Bank of India (RBI), under its new Governor Shaktikanta Das, to again lower interest rates after doing so in February.
“Inflation at the lowest level in 19 months and further weakening in growth created space for further cuts,” said economist Citigroup Inc., led by Samiran Chakraborty, in a study, as reported by Bloomberg, Friday (1/3/2019) .
Consumer price inflation is close to 2%, while core inflation, which excludes the cost of food and fuel, also begins to decrease. The RBI itself targets core inflation at 4%.
Meanwhile, waning consumer demand reduced momentum in the economy where domestic spending of around two contributed around two thirds of GDP. Data from the Central Statistics Office showed that government consumption growth slowed in the quarter.
During the last two quarters, the growth of domestic passenger vehicle sales, which is an indicator of urban demand, has been reduced.
The production of cement, which is a measure of construction activity, slowed slightly. The purchasing manager index (PMI) also shows activity in the dominant service sector has shrunk.
With the government’s move to cut capital spending in its latest budget to curb the fiscal deficit, economists see more sluggishness.
“The lack of government capital expenditure ahead of the election tends to have a slow impact, which affects growth in the following quarters,” said Teresa John, economist at Nirmal Bang Equities India Pvt Ltd.