Indian economy grows at slowest rate in a decade

India's economy grew by five per cent last year, down from 6.2 per cent the the preceding year.

NEW DELHI: India's economy grew by five per cent in 2012/2013, its slowest annual rate in a decade, in another blow to the corruption-hit government ahead of national elections due by next year, data showed Friday.

Low business confidence, slumping investment, high inflation and weak export demand from Western countries are blamed for the bleak performance of the once-booming South Asian economy.

In the fourth quarter to the end of March, gross domestic product grew by 4.8 per cent year-on-year, slightly higher than the previous quarter when it expanded by 4.5 per cent, according to the data from the statistics ministry.

Despite government efforts to talk up the economy after a burst of pro-market reforms at the end of last year, most independent analysts see continuing slack demand and few quick fixes.

"Business activity is still sluggish," Rupa Rege Nitsure, chief economist with state-run Bank of Baroda told AFP ahead of the release of the data.

The economy grew by 6.2 per cent in 2011/12.

Global ratings agency Standard and Poor's warned earlier this month that India faces at least "a one-in-three" chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms.

India's BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa and cutting it to "junk status" would raise the country's hefty borrowing costs.

The Organisation for Economic Cooperation and Development (OECD) this week lowered its projection of India's GDP growth this year to 5.3 percent, from 5.9 percent earlier.

"The government needs to go all-out to turn around investment sentiment," said Yes Bank chief economist Shubhada Rao.

In the January-March quarter, the vital job-creating manufacturing sector increased output by just 2.6 per cent, while production in the country's mines shrank by 3.1 per cent.

The services sector comprising banks, insurance and real estate was a rare bright spot, showing growth of 9.1 per cent.

On the Bombay Stock Exchange, the benchmark 30-share Sensex index was down 1.12 per cent at 19,989.91 points in the late morning as investors reacted to the data.

The left-leaning government led by Prime Minister Manmohan Singh and the Congress party has been dogged by corruption scandals during its second term in office and has struggled to push through promised pro-business legislation.

It is scheduled to face the electorate next year having been unable to sustain the scorching growth rates of the last decade which were frequently near 10 percent.

The last time the economy showed weaker growth than the just concluded financial year was in 2002-03 when it expanded by four per cent.

In a brief reforming period last year, the government opened up the retail and aviation sectors to wider foreign investment and partly freed fuel prices to reduce its burgeoning subsidy bill.

But faced with a hostile parliament and a shaky ruling coalition, it has since failed to pass mooted legislation to open up the insurance and pension sectors or a long-delayed law to simplify land acquisition.

Government pressure has mounted on the central bank to ease borrowing costs after it raised interest rates aggressively in 2010 and 2011 to combat double-digit inflation last year.

It has obliged by cutting interest rates three times in 2013, but Reserve Bank of India governor Duvvuri Subbarao has said the bank has "limited space" to ease monetary policy further due to the risk of inflation flaring up again.

India's wholesale inflation, its most widely watched measure, cooled last month to a surprise 41-month low of 4.89 per cent. But the consumer price index is at 9.39 per cent, led mainly by high food and beverage prices.