NEW DELHI – India’s economic growth slowed for the fifth straight quarterin the April-to-June period to 5.0 percent, government figures showedFriday in a fresh blow to Prime Minister Narendra Modi.
But in an effort to ease the liquidity crunch that has dogged Asia’sthird-largest economy, the government at the same time announced the mergerof 10 public sector banks into four new lenders.
The Indian economy has been suffering from weak consumer demand that sawcar sales fall for the ninth month running in July, leading to calls fromindustry for Modi to stimulate growth.
Having already this year lost to China its status as the fastest-growingmajor economy, the latest growth figure for India’s first fiscal quarterfell well short of market expectations of 5.7 percent.
This is despite India’s central bank, reportedly under government pressure,cutting interest rates four times this year to a nine-year low in an effortto boost activity.
“The growth figures are lower than our projections and reflect majoreconomic slowdown,” Sameer Narang, chief economist at the Bank of Barodatold AFP.
Sujan Hajra, an economist at Anand Rathi securities, said it “reflectsstructural problems with the Indian economy that need long-term solutions”.
Narang added though he was hopeful that measures announced this month byModi’s newly re-elected government would give the economy a boost in thecoming quarters.
On Wednesday, India’s cabinet eased restrictions on foreign investment infour key sectors, including coal mining, in an effort to attract morecapital from abroad.
The government also said it was bringing forward a $10-billion liquiditylifeline for banks and rolling back a levy on equity sales that had spookedforeign investors.
The cash-strapped government is also getting a $24-billion windfall fromIndia’s central bank, potentially giving it extra room to cut taxes andstimulate the economy.
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– Banking behemoth –
India’s right-wing government won a landslide election victory in May eventhough its economic record has been patchy, with unemployment at itshighest since the 1970s.
While the economy has regularly grown at about 7.0 percent since Modi cameto power in 2014, it has failed to create enough jobs for the 1.2 millionIndians entering into the labour market each month.
Just ahead of Friday’s growth figures announcement, Finance MinisterNirmala Sitharaman also announced the merging of 10 public sector banksinto four lenders, in a major overhaul of India’s financial services sector.
The four new banks will hold business worth around 55.8 trillion rupees($781 billion), or about 56 percent of the Indian banking industry,Bloomberg News reported.
The government will also inject a combined 552.5 billion rupees into thenew entities.
India, which has the world’s worst bad-loan ratio, will now have 12state-run banks instead of 27, Bloomberg reported.
“Banks will play an important role for (achieving) a five-trillion (dollar)economy,” said Rajeev Kumar, India’s finance secretary. “For that, we needbanks which have extra lending capacity and have an ability to give betterservices with modern techniques.” -APP/AFP
