Things are turning grim in Mother India. Not only is the country battling with a slump in manufacturing and a deteriorating current account deficit,protestors have also begun to take to the streets again over the soaring price of onions - perhaps the surest measure of the domestic economic malaise.
Indian manufacturing has contracted for the first time since 2009, with the HSBC purchasing managers' index (PMI) falling to 48.5 as both domestic and export orders fell away (a PMI reading below 50 implies contraction). The HSBC revelation came on top of official data from Delhi that showed the economy grew by 4.4 per cent in the first three months of the financial year, the slowest quarterly pace since the onset of the global financial crisis. Growth prospects for the remainder of 2013 aren't particularly buoyant, given that Delhi will be forced to cut spending in order to achieve its fiscal deficit target, reducing the impact of one of the few drivers of the economy at the moment.
A slowdown in GDP stands to exacerbate the key structural problem identified by Manmohan Singh's government - India's current account deficit. The country now imports around $86bn (£55bn) more than it exports - an 11-fold increase in a little over five years. This matters because the surge in imports over exports means that India's foreign exchange reserves now stand at a 3:1 ratio to the country's current account deficit - it was around 30:1 as late as 2007.
The problem has prompted some interesting policy initiatives. It has been reported that India may risk upsetting the US by increasing crude oil imports from Iran through a bilateral barter agreement, which would effectively reduce foreign exchange outflows by an estimated $8.5bn. In recent months, the Reserve Bank of India has dramatically tightened the country's already draconian capital controls, in addition to imposing a number of restrictions and raising duties on gold imports, in a bid to stifle demand for the precious metal.
