The Wall Street Journal reports,"India's economic growth remained stuck below 5% for the seventh consecutive quarter last quarter as inflation and waning investor confidence continued to drag on Asia's third-largest economy.
The government said Friday that gross domestic product during the October to December quarter rose 4.7% from a year earlier, compared with the 4.8% and 4.4% expansion in the preceding two quarters. A poll of 16 economists by The Wall Street Journal had predicted 4.9% growth''.
While some economists and executives are cautiously optimistic that India's period of stagflation—during which it struggled with high inflation rates even as economic growth has been slowing—is coming to an end, many warn it could be years before India returns to the near 10% expansion rate it witnessed just a few years ago.
"By and large, we are probably seeing the economy bottom out right now," said Leif Eskesen, HSBC's Singapore-based chief economist for India. "As we move into the next fiscal year, we will see growth gradually pick up and move above 5%."
While some are optimistic a business-friendly coalition led by the current leading opposition Bharatiya Janata Party may be in charge in New Delhi after the general elections, others are concerned that an unstable coalition could be elected, further delaying a much-needed revamp of regulations.
Whichever parties come to power, the next government will have to give a renewed push to clear the backlog of government approvals which is holding back big industrial projects if it hopes to jump start the economy, said Anubhuti Sahay, an economist at Standard Chartered Bank.
The other big wild card that could weigh on the economy is inflation. While some prices have cooled in recent months, any new surges in inflation rates could force the central bank to raise interest rates again.
"A precondition for a sustained recovery in growth is that inflation is brought under control," said Mr. Eskesen at HSBC. "That implies the RBI has to keep its guard up."
Optimists looking for good news have found a few positive indicators in recent weeks. An aggressive clampdown on gold imports has helped India slash its current-account deficit by about half to a projected $45 billion this fiscal year from a record $88 billion last year. Meanwhile the rupee's weakness against the dollar as well as a recovery in the U.S., Europe and Japan is helping Indian exports.
Finance Minister P. Chidambaram has said growth would accelerate to 6% next fiscal year. Earlier this month, the government projected the economy would grow 4.9% this fiscal year, faster than last year's 4.5% expansion.
