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From Staff Reports
India's latest economic figures show GDP growth slowed to 8.9% in its fiscal second quarter, down from 9.3% in the previous quarter.
However, India's growth still beat analysts' predictions, and the central bank predicts GDP growth for the year to come in at 8.5%, just 0.1% below India's record expansion of 2003.
Much of the slowdown came from the manufacturing sector, which clocked in with its slowest expansion of the past seven quarters – 8.6% growth compared with 12.7% in the second quarter of 2006. Both Tata Motors Ltd. (TTM) and Hero Honda Motors Ltd. cut back production when faced with lower consumer demand.
Also a factor, India's central bank has raised interest rates nine times since 2004.
"The Indian economy is softening but not dramatically so," Robert Prior-Wandesforde, senior economist at HSBC Holdings plc (NYSE: HBC), told Bloomberg. "A gentle slowdown is probably exactly what the Reserve Bank of India would like to see."
In addition to encouraging a soft slowdown, India's rising interest rates have cut inflation in half, from 6.7% at the start of the year to 3.2% today.
The strengthening rupee is also acting as a brake on the economy, helping to keep growth at sustainable levels.
Unlike China and other Asian nations, India is not overly reliant on exports, which make up a relatively small 23% of the economy. That has led analysts to believe the emerging housing and sub-prime crises in America will not affect India as much as others.
"If the global economy weakens sharply then India is likely to be hurt through weaker exports, credit tightening by banks and reduced portfolio inflows," Sonal Varma, Indian economist for Lehman Bros, told London South East.
However, with less exposure than other nations, India would grow in relative strength should America enter a period of weakness.
Varma posits that, regardless of the global economy, India will continue to be a leader in GDP growth.
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