Confirming a slowdown, India's economic growth rate slipped to 6.9% in the second quarter this fiscal, the lowest in nine quarters, prompting the government to lower its full-year growth projection to 7.3%.
Economic growth during the July-September period of FY12 fell mainly due to poor manufacturing performance and declining output of the mining industry. Agriculture growth, too, showed moderation during the period.
"Taking into account the trend of the last two quarters, I expect the GDP growth to be 7.3% (in FY12)," Finance Minister Pranab Mukherjee told reporters.
The economy grew by 8.5% last financial year.
On the back of the tight monetary policy followed by the Reserve Bank to tame inflation, the growth rate in the manufacturing sector nosedived to 2.7% in the July-September quarter from 7.8% in the corresponding quarter of the previous fiscal.
Mining and quarrying sector output declined by 2.9%, compared to a growth of 8% in the second quarter of FY11. Agriculture production slipped to 3.2% from 5.4% in the corresponding period last fiscal.
GDP growth in the second quarter last fiscal stood at 8.4%.
"We are having multiple problems... Slow growth of Europe and America... Problems within the country and outside the country as well," Mukherjee said, adding, "We shall have to try to face the situation and to see what best we can do at this given situation."
According to the figures released by the government, cumulative GDP growth in the first half (April-September) of FY12 also moderated to 7.3% from 8.6% in the corresponding period last fiscal.
The Reserve Bank has already lowered its growth projection for the current fiscal to 7.6% from the earlier estimate of 8% on account of the global slowdown and high domestic inflation.
The latest revision to 7.3% is significantly lower than Mukherjee's Budget projection of 9% growth this fiscal.
Experts termed the second quarter GDP numbers as disappointing.
"The growth in second quarter is lower than expectations. The poor performance of the manufacturing sector and falling industrial production have led to lower growth... However, performance of the economy in the third and fourth quarters should be better on account of improved performance by agriculture," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said.
The slowdown in the manufacturing sector and decline in mining and quarrying is likely to put further pressure on the government and the RBI at a time when the economy is grappling with high interest rates.
India Inc has blamed the decline on tight monetary policy, which has increased the cost of borrowings and thereby slowed down industrial growth by hindering fresh investment.
The RBI has hiked interest rates 13 times since March, 2010, to tame demand and curb inflation. Headline inflation has been above the 9%-mark since December last year.
The government and the RBI have accepted that high interest rates may hurt the country's growth prospects, but the apex bank has underlined that bringing inflation under control is its major agenda.
"We are expecting it [growth] to stay around this level of 7% for the remaining quarters of this financial year," Bank of America-Merill Lynch economist Indranil Sengupta said.
