India's economy grows 7.3 percent in Q2

India's economy grew by a lower-than-expected 7.3 percent in the second quarter, the government said Wednesday, adding to pressure to cut rates amid warnings that a cash shortage will dent annual growth. Gross domestic product in the world's fastest-growing major economy expanded 7.3 percent year-on-year in the three months to the end of September, up slightly from the previous quarter, official figures showed.
Analysts said the figures fell slightly short of expectations for the second quarter of the financial year and would add to the pressure on the central bank to lower interest rates at a review next week. That decision is also expected to be influenced by warnings of a spending slowdown after most of the country's currency was withdrawn from circulation earlier this month.
India's growth has outpaced that of Asian rival China for more than a year. But economists say the government's shock move to pull 86 percent of the country's currency from circulation to tackle widespread tax evasion will hit the economy. "Overall, we will witness India's GDP figures dipping anywhere between 6.8 to 7 percent for the financial year 2016-17," said Anil Kumar Bhansali, analyst with Advantage Overseas Private Limited in Mumbai.
He predicted the Reserve Bank of India would cut rates, which are already at a six-year low of 6.25 percent. "We expect the central bank to cut interest rates by 50 basis points post demonetisation to stabilise the economy," he said. "There will be steep fall in GDP figures in the January to March quarter."
India runs largely on cash, but that is still in short supply, more than three weeks after Prime Minister Narendra Modi's announcement that 500 and 1,000 rupee ($7.30, $14.60) notes would no longer be legal tender. Experts say the move was a contributing factor to the rupee hitting an all-time low of 68.8625 rupees against the dollar last Thursday, although the main reason was an expected US rate rise next month. Ratings agency Fitch has already lowered its India growth forecast for the current fiscal year from 7.4 percent to 6.9 percent, saying the cash crunch will bring "temporary disruptions" to economic activity.