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Slowing Indian Economy adds up to Policy Overhaul Pressure

Indian economy has started slowing down, and it was reported to be at the weakest speed last month due to great recession, as subdued investment and elevated inflation add pressure on Manmohan Singh, the Indian prime minister, to prolong the latest policy overhaul. The net domestic product was up by 5.2% in the last quarter, compared to the previous year, according to Bloomberg News survey estimation. The final report is going to be unveiled on November 30. And, that would be the lowest since 3.5% in Jan to March, 2009.

Prime minister’s overhaul to lure foreign traders has been affected by budget and trade deficits that have hurt the Indian currency, whose 3.6% slide against the American Dollar during the last month was the worst hit. Disagreement to his push to open industries like insurance to foreign companies, retail, and pension risks to deadlock in the parliament, blurred the prospect for Asian number three economy. Nomura Holdings Inc economist, Sonal Varma said country needs to renew its investment, but it happens only when the fiscal deficit and inflation come down and changes drive in. The Mumbai-based analyst said without reforms, the development and the Indian currency may remain under pressure. Manmohan Singh’s alliance changed way in mid-Sept to restrain fuel subsidies and draw in more overseas investment, losing its party majority in the course after policy makers passed objection. The currency has wiped out gains sparked by the overhaul, worrying that the discord signals in country may fail to bring back the economic development to the 5-year average of about 8%. The inflation has surpassed 7% for most of this year, fanned by supply bottlenecks, food costs, as well as rupee weakness.

The price weights in India, where majority of Indians still spend less than $2 every day, have limited its scope to join the upcoming markets from Thailand to Brazil in further interest rate-cuts as world economic growth continues to falters. The rupee rose by 0.2% to 55.595 per dollar in Mumbai in the first session and SENSEX’s stock strengthened 1%, while the yield on the ten-year agreement dropped from 8.20% to 8.19%. The parliament meeting was postponed as policy makers demanded a vote on the Govt’s September 14 decision, allowing firms, like Wal-Mart to set up supermarkets in India.

The lawmakers feel that it would hamper small shopkeepers business in a big way. The interruption casts a cloud over Indian prime minister’s power to push through bills, which would enable foreign brands to invest in the pensions market, holding nearly 49% of insurance businesses.

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