<div>India's economic growth slowed by more than expected in the quarter to June, according to data released on Monday (31 August) that will worry Prime Minister Narendra Modi and prompt more urgent calls from his aides for interest rate cuts.</div><div> </div><div>Gross domestic product expanded an annual 7 per cent rate in the April-June quarter, government figures showed. That was slower than provisional growth of 7.5 per cent in the previous quarter.</div><div> </div><div>Analysts polled by <em>Reuters </em>expected growth for the quarter to come in at 7.4 per cent, but a weak showing from the services sector acted as a drag on Asia's third-largest economy.</div><div> </div><div>"Growth conditions are still weak and are picking up in a very, very gradual manner," said A. Prasanna, economist at ICICI Securities Primary Dealership.</div><div> </div><div>While India matched growth in China, the loss of momentum comes just as Modi's image as the country's economic saviour starts to fade 15 months after his historic electoral triumph.</div><div> </div><div>He swept to power on a promise of speedier growth creating millions of manufacturing jobs. But businesses are getting restless with slow progress in removing barriers to growth.</div><div> </div><div>The data will also strengthen the chorus from Modi's administration for a rate cut. Some bureaucrats are already arguing for an immediate reduction of as much as 50 basis points in the Reserve Bank of India's main 7.25 per cent policy rate.</div><div> </div><div>"In our view, (it) clearly paves the way for two more repo rate cuts before the close of the financial year," said Jyotinder Kaur, principal economist at HDFC Bank.</div><div> </div><div>The RBI has cut the policy repo rate 75 basis points since January. But it left the rate on hold at its last policy review early this month.</div><div> </div><div>While it has not ruled out further monetary easing, it has tied up future rate cuts to the inflation outlook.</div><div> </div><div>Many in the government are worried that growth could slip below the official target of 8 to 8.5 per cent for the year to March, and sees the RBI's caution as worsening the situation.</div><p><br><strong>COMMENTARY</strong><br><br><strong>SHILAN SHAH, INDIA ECONOMIST, CAPITAL ECONOMICS</strong><br>"At face value, today's GDP figures for Q2 suggest that India matched China as the world's fastest-growing major economy last quarter. But the GDP data remain inconsistent with numerous other indicators which suggest that, at best, the economy is in the early stages of recovery after three years of tepid growth<br><br>"The official GDP data are overstating the strength of the economy, most probably by a significant margin.<br><br>"For now the key point is that they remain inconsistent with a number of other activity indicators that point to a slowdown in the economy over much of the past three years, and only a modest improvement more recently."<br><br><strong>R. SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT</strong><br>"Certain sub-sectors have expanded quite sharply, consistent with the pick-up in manufacturing activity. Overall, I'll say it looks like a good number.<br><br>"I would, however, say that this new series has proved a bit difficult to work with. Conceptually the biggest questions in the new series is inflation. The GDP deflation seems to indicate a level of inflation that is much lower than the inflation we have seen in the last few years, so that projects a much higher real rate of growth.<br><br><strong>JYOTINDER KAUR, PRINCIPAL ECONOMIST, HDFC BANK</strong><br>"Perhaps expectations are getting ahead of themselves at this stage.<br><br>"There's a lot of emphasis that's being put on the opportunities that lie ahead for India and not too much attention is being paid to the challenges that remain today.<br><br>"From the looks of it, it seems to be suggesting a further deceleration from last quarter, which in our view clearly paves the way for two more repo rate cuts before the close of the financial year."<br><br><strong>MADHAVI ARORA, ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI</strong><br>"The GDP number is disappointing, but overall, going ahead we expect India's economic growth to be driven by domestic demand.<br><br>"With commodity prices falling, there should be a boost to corporate margins going ahead and household spending should also go up.<br><br>"We expect RBI to cut interest rates by 25 basis points in September as global growth concerns still continue and India is importing low inflation thanks to easing commodity prices."<br><br>(Reuters)</p>
