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Indian economic growth slows to 7.9 pct: official data

NEW DELHI - India's high-flying economy expanded by a slower-than-expected 7.9 percent in the first quarter as stiff anti-inflation measures hit demand, official data showed Friday.

The figure for the three months to June was far below the previous quarter's growth of 8.8 percent and the 9.2 percent expansion logged by Asia's third-largest economy in the first quarter a year earlier.

India's economy, which has drawn billions of dollars in foreign investment, has been steadily losing steam as the central bank has aggressively raised interest rates to curb inflation now riding at 13 year highs.

The first-quarter figure released by the Central Statistical Organisation was below market expectations that the economy would grow by 8.1 percent.

The data came after Prime Minister Manmohan Singh's Economic Advisory Council forecast earlier this month that economic growth would likely slow to 7.7 percent this year, dragged down by monetary tightening, a drop in farm output and global financial turmoil.

The economy grew by nine percent last year and 9.6 percent the previous year.

Inflation has been stoked by a surge in global oil and other commodity prices.

Annual inflation slowed for the first time in a month, falling to 12.40 percent, figures released late Thursday showed, but economists said theyexpected another round of monetary tightening to tame prices.

The Reserve Bank of India has raised rates three times since June, continuing a tightening cycle that began in 2004, and the bank's key short-term lending is now at nine percent -- a seven-year high.

‘My sense is there is still one more round of tightening in store and the central bank wants to be on top of things,’ said Dharma Kriti Joshi, principal economist at Crisil credit rating agency.

In the first quarter, manufacturing growth almost halved to 5.6 percentfrom 10.9 percent a year earlier, pulled down by the rise in interest rates. Utilities grew by just 2.6 percent, down from 7.9 percent a year earlier.

But in the services sector which accounts for more than half of gross domestic product, trade, hotels, transport and communication grew by 11.2 per cent, down from 13.1 per cent.

Financing, insurance, real estate and business services expanded by 9.3 percent, down from 12.6 percent.

Agriculture grew by three percent, down from 4.4 percent.

While agriculture represents just under 20 percent of GDP, the sector's health is vital to the economy as some 60 percent of India's 1.1 billion people rely on it for a living.