India growth slides to two-year low

By Malini Hariharan

Economic data from India continues to disappoint. The economy grew at only 6.9% for the quarter ended September, the weakest pace in more than two years and below forecasts. Activity in the manufacturing sector slowed sharply as a result of high interest rates. The segment, which accounts for around 16% of the GDP, expanded by only 2.7%, well below the 7.2% growth recorded in the previous quarter.

Interest rates have been raised 13 times in the last 20 months to control inflation but it is stubbornly running at over 9%. A looser monetary policy would help stimulate growth but the move is unlikely until inflation falls to a manageable level.

The weak economy has already had an impact on domestic demand for polymers.

The rupee’s steady slide against the dollar, nearly 7% in November, has also become a big problem for importers. This is the rupee’s worst fall in the last 16 years.

In the diammonium phosphate (DAP) market, international suppliers have agreed on substantial discounts to Indian buyers to offset the devaluation of the rupee, reports ICIS news. While some market players are concerned that the move could set a precedent, suppliers probably have no choice as India represents about 50% of the DAP market.

But depreciation of the rupee is helping local producers giving them an opportunity to raise prices. Companies such as Reliance Industries have managed to push through three price hikes for polyethylene (PE) and polypropylene (PP) in the last three weeks.

The government is targeting GDP growth of 7.3% for the full year but even this could be difficult to achieve given the level of internal and external risks.

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