Economic slowdown mainly due to external factors: RBI

Mumbai: The Reserve Bank has attributed decline in the economic growth rate to three-year low of 6.9 per cent in 2011-12 largely to deterioration in the external environment.

"Recent data indicate that after a smart recovery during 2009-10 and 2010-11, real GDP growth slipped sharply to 6.9 per cent during 2011-12 largely on account of the deterioration in the external environment and the slowdown in domestic investment," Reserve Bank of India (RBI) said in its monthly bulletin released on Monday.

The external factors that influenced the performance of the economies of the world include euro zone sovereign debt crisis and rising prices of commodities, it said.

According to the Central Statistical Organisation (CSO), India's growth rate is estimated to slip to 6.9 per cent in 2011-12 from 8.4 per cent in the preceding two years.

The fiscal also witnessed "loss of momentum in overall activity", the report said, but added India has done well as compared to several other countries.

"Notwithstanding the recent slowdown, the rate of growth of the Indian economy remained quite impressive in a cross-country context," the report added.

The Indian economy, it said, has "generally outperformed the other economies, with the notable exception of China, right through 2007 to 2010 and is expected to continue to do so in 2011 and 2012."

Savings and investment rates dipped during 2010-11 mainly reflecting a decline in household financial savings and private corporate sector investment, it said.

"During the four years since global financial crisis...the growth rate of real GDP averaged 7.6 per cent which was lower by nearly two percentage points than during 2005-06 to 2007-08," the study said.

The estimated growth rate in 2011-12 is only slightly higher than 2008-09 when the Indian economy was adversely and indirectly affected by global financial crisis, it said.

The deceleration in real GDP during 2011-12, it said, was evident across the major sectors, "largely in agriculture on account of base effect followed by industry and to some extent in services".

Within industry, mining and quarrying sector contracted while manufacturing sector growth rate, which accounts for around 80 per cent of industrial sector, nearly halved, the report said.