GDP slips to a 3.5 yr low at 7.9 per cent

Analysts said growth remained robust, but higher interest rates and oil and commodity prices were taking their toll and expansion for the fiscal year was likely to be about 7.5 per cent, from rates of 9 per cent or more in the previous three years.

“In the face of good growth and loose fiscal policy, I don’t expect any relaxation in the central bank’s tight policy stance even though inflation has moderated slightly,” said Indranil Pan, chief economist at Kotak Mahindra Bank.

India’s markets took the data calmly. The 10-year bond yield eased 1 basis point to 8.66 per cent and the rupee held steady at 43.75/76 per dollar. Stocks were up 3 per cent, helped by some moderation in inflation and gains in Asia.

India, whose economy is less export-oriented that many of its Asian neighbours, is keen to see expansion of 8-10 per cent to reduce poverty and create jobs.

China saw economic growth slowing in the first half but still in double digits, while Singapore and Hong Kong, Asia’s most open economies, reported quarterly contractions in April-June.

Inflation in India has raced above 12 per cent to its highest in the 13 years the current series has been available, largely due to surging oil and food prices, although data on Thursday showed the annual rise had moderated slightly in mid August.

The central bank raised interest rates three times in June and July, lifting its key lending rate to a seven-year high of 9.0 per cent.

Economists said a loan waiver to farmers from the government and a steep hike in government employees’ salaries this year would provide a boost to output.

“Consumption spending is going to get a boost from an expansionary fiscal policy in the second half of the year. We expect growth for the whole fiscal year to come down to about 7.5 per cent,” said Gaurav Kapur, economist at ABN AMRO.

Manufacturing grew 5.6 per cent in the April-June quarter from a year earlier, while agriculture expanded an annual 3.0 per cent.