MUMBAI: India'seconomic growth slowed for the fifth straight quarter in the April-to-Juneperiod to 5.0 percent, government figures showed Friday in a fresh blow toPrime Minister Narendra Modi. But in an effort to ease the liquidity crunchthat has dogged Asia's third-largest economy, the government at the same timeannounced the merger of 10 public sector banks into four new lenders.
The Indianeconomy has been suffering from weak consumer demand that saw car sales fallfor the ninth month running in July, leading to calls from industry for Modi tostimulate growth. Having already this year lost to China its status as thefastest-growing major economy, the latest growth figure for India's firstfiscal quarter fell well short of market expectations of 5.7 percent. This isdespite India's central bank, reportedly under government pressure, cuttinginterest rates four times this year to a nine-year low in an effort to boostactivity.
"The growthfigures are lower than our projections and reflect major economicslowdown," Sameer Narang, chief economist at the Bank of Baroda told AFP.Sujan Hajra, an economist at Anand Rathi securities, said it "reflectsstructural problems with the Indian economy that need long-termsolutions". Narang added though he was hopeful that measures announcedthis month by Modi's newly re-elected government would give the economy a boostin the coming quarters.
On Wednesday,India's cabinet eased restrictions on foreign investment in four key sectors,including coal mining, in an effort to attract more capital from abroad. Thegovernment also said it was bringing forward a $10-billion liquidity lifelinefor banks and rolling back a levy on equity sales that had spooked foreigninvestors. The cash-strapped government is also getting a $24-billion windfallfrom India's central bank, potentially giving it extra room to cut taxes andstimulate the economy.
Banking behemoth
India'sright-wing government won a landslide election victory in May even though itseconomic record has been patchy, with unemployment at its highest since the1970s. While the economy has regularly grown at about 7.0 percent since Modicame to power in 2014, it has failed to create enough jobs for the 1.2 million Indiansentering into the labor market each month.
Just ahead ofFriday's growth figures announcement, Finance Minister Nirmala Sitharaman alsoannounced the merging of 10 public sector banks into four lenders, in a majoroverhaul of India's financial services sector. The four new banks will holdbusiness worth around 55.8 trillion rupees ($781 billion), or about 56 percentof the Indian banking industry, Bloomberg News reported. The government willalso inject a combined 552.5 billion rupees into the new entities.
India, which hasthe world's worst bad-loan ratio, will now have 12 state-run banks instead of27, 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 need banks which have extra lending capacity and have anability to give better services with modern techniques." - AFP