India sees slowdown in economic growth

The silver lining was the services sector, which grew at 8.9 per cent, compared to 7.7 per cent a year ago

Growth slows to 6.1 per cent as rising interest rates and global downturn take toll on Asia's third largest economy.
India's economic growth has slowed to 6.1 per cent in the last quarter of 2011, its slowest pace in over two years, in the wake of high interest rates and a struggling global economy.

The data released on Wednesday for the December quarter marks a slowdown from the July-September quarter, when the economy grew 6.9 per cent.

The latest data comes as more bad news for the Congress-led federal government, already marred by a string of corruption scandals and accusations of economic policy indecision.

India's benchmark stock index was down fractionally amid gains in other Asian markets.

Manufacturing managed just a 0.4 per cent rise against 7.8 per cent in the same period a year ago, while agriculture grew 2.7 per cent, down from 11 per cent in the corresponding period a year ago.

Mining fell by almost half, from 6.1 per cent to 3.1 per cent, due to lower supply of raw materials but also fuelled by lower demand as higher interest rates have put off companies from investing in expansion.

The silver lining was the services sector, which grew at 8.9 per cent, compared to 7.7 per cent a year ago.

Fiscal firepower

The central bank increased interest rates 13 times before pausing in October last year, and has urged the federal government to unblock supply constraints to help fight inflation and better balance the budget, which will be presented in March.

With growth slowing sharply and inflation at two-year lows, analysts forecast the central bank would cut rates at its next meeting on March 15.

The government now says it expects the economy to grow by about seven per cent for the year ending in March, down from earlier expectations of nine per cent.

The government, hamstrung by debt, also lacks the fiscal firepower to stimulate the economy, making it less able to weather another downturn after the financial crisis of 2008-09.

Pranab Mukherjee, the finance minister, who is to present the national budget in March, asserted this week that the "worst state" of the slowdown was over.

Even though 6.1 per cent growth would be the envy of much of the world, it is a disappointing result for India, which is aiming for double-digit expansion.

The Indian slowdown comes as growth in China, its regional economic rival, decelerated to 8.9 per cent in the same time period.