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India’s Economy Slows Ahead of Elections

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GDP of Asia’s third-largest economy drops to 6.6 percent in third quarter

India’s economy slowed further in the latest quarter, official data showed on Thursday, as the world’s largest democracy prepares for a national election and clashes with rival Pakistan at the border.

GDP growth in Asia’s third-largest economy reduced to 6.6 percent in the third quarter, a consecutive slump from 7.1 percent in the three months to the end of September. The numbers bode ill for Prime Minister Narendra Modi, who steamrolled to power in 2014 promising to create millions of jobs and spur economic growth but must call a general election by May.

“Numbers are disappointing and show growth trajectory slowing down and Modi government cannot do anything between now and elections,” said Ashutosh Datar, an independent economist.

The figures were blamed on weaker consumer spending and a slowdown in investment. The Central Statistics Office also revised down its growth forecasts for the fiscal year ending March to 7 percent from an earlier projection of 7.2 percent.

Analysts say India needs to regularly record growth rates of at least eight percent to create jobs for millions of Indians entering the workforce every year. Unofficial figures leaked from the statistics ministry earlier this year showed India’s unemployment rate at a 45-year high of 6.1 percent.

The dampened numbers also come as New Delhi and Islamabad lock horns in a military crisis that analysts say could spook foreign investors from making much-needed investments in India. The nuclear-rivals have claimed to shoot down each other’s fighter planes in an escalating conflict over the disputed border of Kashmir following weeks of heightened tension. While India has accepted the loss of one of its aircraft, Pakistan vehemently denies any of its planes were shot down.

India struck what it called a militant training camp inside Pakistan this week in retaliation for a suicide attack in Kashmir that killed at least 40 of its paratroopers. Pictures from the site reveal it only managed to hit a few trees.

Pakistan responded by sending fighter planes across the de facto border, sparking a dogfight that saw an Indian plane downed and the pilot taken into custody.

“Foreign investors may stay away from India depending on weak growth and ongoing security issues,” said Sujan Hajra, economist with Mumbai-based Anand Rathi securities.

The crisis comes as Modi faces opposition allegations that he has failed to create work for India’s young jobseekers and revitalize the economy. Experts say more interest rate cuts are needed. Late last year Shaktikanta Das—widely seen as a Modi ally—was appointed governor of the Reserve Bank of India after the previous chief quit, and said he would regularly hold consultations with the government.

The bank cut rates in February to 6.25 percent but experts say more reductions are in the offing. “There will be clamor for more rate cuts and we may even see RBI cutting the rates by 50 basis points to boost growth,” Hajra says.

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