India’s economy contracted for the fourth consecutive quarter in March, while the rupee fell to a record low against the dollar.
The government on Wednesday slashed the GDP growth target from 7.7 per cent in March to 6.4 per cent.
Economists expect the GDP to fall to 5.8 per cent by the end of the year.
Analysts said the government may have underestimated the strength of the rupees and that the country will need to do more to stimulate growth.
India’s gross domestic product (GDP) grew at an annual rate of 6.2 per cent during the last three months of this year, the lowest growth rate in the world.
In a statement, the government said the contraction was due to a fall in the manufacturing sector and a drop in exports, with a net gain of 0.4 million jobs in the same period.
“The government has cut its growth target for the first time in a decade by a quarter, which has resulted in a decline in GDP growth,” the statement said.
This year’s GDP is forecast to grow by 4.2 percent, but the central bank expects a contraction of 6 percent to 7 percent, said Manish Aggarwal, economist at ICICI Securities.
While the rupe has fallen against the US dollar, the rughunter has remained stable against the euro.
The Indian rupee has gained more than 10 percent against the greenback this year and has now recovered about three percent in two months.
Rohit Chopra, chief economist at IHS Global Insight, said the ruhat rate may have hit the floor too low.
I think the government needs to increase its stimulus spending now, he said.
I think they will see the ruat rate rise to about 6-7 per in the second half of the financial year.
India is now projected to grow at a more rapid pace in the third quarter than it did in the first quarter.
The government plans to expand fiscal stimulus spending to 6 trillion rupees ($1.1 trillion) this year as part of its plan to counter slowing growth.
The rupee rose by more than 15 percent against a basket of currencies in April.
A rupee that is too weak for some countries could make it difficult for India to maintain its export competitiveness and keep inflation down, analysts said.