India's economy grew at its slowest annual rate in 3-½ years in the June with service sector faltering
Media Release
Aug. 30, 2008

India's economy grew at its slowest annual rate in 3-½ years in the June quarter, losing momentum as services slowed markedly, but high inflation meant the central bank was unlikely to relax its monetary stance soon.

Annual growth for India's April-June fiscal first quarter was 7.9 percent , data showed on Friday, lower than the median forecast in a Reuters poll of 8.1 percent and 8.8 percent in the March quarter.

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 percent, from rates of 9 percent 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.

Inflation in India has raced above 12 percent 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 percent to dampen persistent demand pressures and discourage knock-on price increases from a hike in state-set fuel prices.

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," said Gaurav Kapur, economist at ABN AMRO.

Manufacturing grew an annual 5.6 percent in the June quarter, slightly slower than 5.8 percent in the March quarter, while agriculture expanded 3.0 percent, a touch faster than previously.

India's economy grew at its slowest annual rate in 3-½ years in the June with service sector faltering
Media Release
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