Hit by a string of interest rate hikes and the stumbling world economy, India's economic growth slumped to a two-year-low of 6.9% in the second quarter, data showed on Nov. 30.
The expansion in July-September was the weakest since the three months to June 2009 when the economy grew just 6% year-on-year as Western economies were emerging from the bruising international financial crisis.
The second-quarter growth was sharply below 7.7% expansion logged from April to June and 8.4% growth posted a year ago.
Manufacturing output grew just 2.7% year-on-year, down from 7.8% a year earlier.
Finance Minister Pranab Mukherjee cut India's growth forecast to 7.3% for the fiscal year to March 2012 from an original blistering 9%. Mukherjee has been steadily lowering his growth forecast since February as the economy has been hobbled by 13 interest rate hikes in under two years that have failed to tame inflation, still flaring near 10%.
But some private economists said expansion could be as low as 6.5% with the country shifting to a new, lower growth trajectory.
"We're having multiple problems," Credit Agricole economist Dariusz Kowalczyk said, citing anemic growth in Europe and the United States that has slowed investment and export demand as well as "problems within the country."
The growth downturn is an additional burden for the Congress party-led government, which is facing strident opposition to its attempt to jump-start its stalled reform agenda by opening up India's vast retail market to global competition.
The sluggish growth means an end to India's rate hiking cycle, said economists, who predicted the central bank may start cutting rates in the first six months of 2012 if inflation cools. On Monday, the Organization of Economic Cooperation and Development (OECD) warned the global slowdown would hit emerging giants India and China, but could also bring a respite from inflation. China's growth eased to 9.1% in the last quarter from 9.5% in the previous three months -- its lowest in two years, hit by efforts to tame inflation and global economic headwinds.
Analysts said the slowing economy would pile more pressure on the rupee, trading at record lows against the dollar, as investors flee emerging markets for safer havens, rattled by the eurozone debt crisis.
Copyright Agence France-Presse, 2011