INDIA: GDP growth near 3-yr low of 6.1%

RBI Comes Under Pressure To Cut Interest Rates TIMES NEWS NETWORK  New Delhi: The economy grew 6.1% during October-December 2011, the slowest pace of expansion in 11 quarters, due to a slowdown in the manufacturing sector and contraction in mining activity. Although the latest data has not prompted a reduction in the annual growth projection of 6.9%, it is expected to put further pressure on the Reserve Bank of India to cut interest rates as investment has declined.      A part of the moderation from 8.3% GDP growth in the third quarter of the last financial year was on account of consumers deferring purchases due to high interest rates and elevated price levels. The crisis in Europe and the slowdown in the US also took a toll on exports, and impacted manufacturing activity in the country.      In case of mining, the ban on iron ore mining in certain parts of the country and the impact of environmental clearances on coal took a toll. Even agriculture grew at a slower pace than a year ago but that was due to a high base in the third quarter of 2010-11. Data released by the Central Statistics Office showed that the farm sector expanded by 2.7% during October-December 2011 compared to 11% a year ago.      Economists at Citibank and ratings agency Crisil predicted that the economy was on course to achieve 7% growth in the current financial year as the service sector was still recording a strong growth. Three of the four sectors clocked over 9% rise in activity, with construction too growing by over 7%.  Cabinet may take up divestment plan today      The Centre is set to provide a major push to disinvestment in the coming months to bolster its financial position and generate funds for its social sector programme. Sources said the Union cabinet could take up a proposal on Thursday to sell stake in state-owned companies, with buyback on top of the agenda.P 23  Pak moves to grant MFN tag to India      Pakistan on Wednesday moved closer to granting most-favoured nation status to India by switching to a system of "negative lists" that will restrict the import of around 1,200 items from India. Pakistan will now permit import of around 6,800 products from India compared to 1,900 products earlier.  RBI faces inflation, deficit dilemmas      In order for the government to meet its first advance GDP estimate of 6.9% for 2011-12, growth in the fourth quarter is likely to be 6.9%," Citibank economists Rohini Malkani and Anushka Shah said in a note.      "We would expect this to be the bottom or close to the bottom and Q4 is likely at 6.1% too. RBI is expected to factor in these growth dips and start cutting rates from April, first cut of 25 basis points. But RBI might not be able to cut the policy rates aggressively as inflation concerns persist, especially with international crude oil prices remaining firm," said Kotak Mahindra Bank chief economist Indranil Pan.      The continued fall in growth rates promoted industry chambers to argue for a rate cut to boost economic activity. CSO data estimated investment at 30% of GDP as compared to 32.3% a year ago. This was the fourth quarter in a row when it had declined. At the same time, private consumption also remained constant.      RBI, however, faces twin dilemmas. One inflation, especially in the manufactured good segment, remains high and there are signs of fresh pressure on oil prices due to tension in Iran. Two, it has already made public its concern over the Centre's fiscal situation. With tax collections and disinvestment targets expected to be missed and subsidies projected to be higher than the budgeted level, fiscal deficit is projected to be over 5.5% of GDP as compared to the 4.6% target.      Separate data from the finance ministry showed that the government's fiscal deficit in end-January was more than the level budgeted for the full financial year.