The aftershocks of the “policy paralysis” in the UPA II government were clearly visible on Wednesday as economic growth slipped to a disappointing 6.9 per cent in the second quarter of this fiscal, the lowest in the last nine quarters. This prompted the government to lower its full-year growth projection to 7.3 per cent against 8.5 last fiscal.

The continued debt crisis in the Eurozone and the economic slowdown in the U.S. also impacted the economic parameters of labour-intensive industries as manufacturing took a big hit. Growth during the July-September period of 2011-12 fell mainly due to poor manufacturing performance and declining output of the mining industry. There was also a moderation in agriculture growth.

“Taking into account the trend of the last two quarters, I expect the GDP [gross domestic product] growth to be 7.3 per cent [in 2011-12],” Finance Minister Pranab Mukherjee said.

Rising inflation, continued political and economic uncertainty, rising interest rates, unstable economic order and slow pace of reforms have badly impacted growth. Tight monetary policy followed by the Reserve Bank of India to tame inflation led to a drop in the manufacturing sector growth rate — to 2.7 per cent in July-September from 7.8 per cent in the corresponding quarter of the previous fiscal.

The mining and quarrying sector output declined by 2.9 per cent, compared to 8 per cent in the second quarter of 2010-11. Agriculture production slipped to 3.2 per cent from 5.4 in the corresponding period last fiscal. GDP growth in the second quarter last fiscal stood at 8.4 per cent.

The RBI has already lowered its growth projection for the current fiscal to 7.6 per cent from an estimated 8 per cent. The latest projection by Mr. Mukherjee to 7.3 per cent is significantly lower than his Budget estimate of 9 per cent growth.

“The growth in the second quarter is lower than expectations. However, performance of the economy in the third and fourth quarters should be better on account of improved performance by agriculture,” Prime Minister's Economic Advisory Council chairman C. Rangarajan said.

India Inc has blamed the decline on tight monetary policy, which has increased the cost of borrowings and thereby slowed down growth by hindering fresh investment.

Major agenda

Headline inflation has been above the 9 per cent mark since December last. The government and the RBI have accepted that high interest rates could hurt the country's growth prospects, but the central bank has underlined that bringing inflation under control is its major agenda.