Page last updated at 11:16 GMT, Friday, 30 May 2008 12:16 UK

India's economic expansion slows

Laborer on Indian construction site
Growth in the construction sector boosted the Indian economy.

The Indian economy grew by a faster-than-expected 8.8% from January to March compared with a year earlier.

The growth was driven by a strong performance from the service and construction sectors.

But overall, the rate of expansion is slowing and economists are concerned about high inflation caused by rising food and fuel prices.

Growth is expected to continue to slow this year, but will remain higher than most other economies in the world.

"There will be deceleration this year coming from industry and high interest rates," said economist Saugata Bhattacharya, from the Mumbai-based Axis Bank.

"Industrial impulses will be curtailed. However, there will be a partial offsetting if agriculture and monsoons will be good," he said.

The construction sector expanded significantly, growing by 12.6% between January and March, compared with 7.1% during the previous three months.

Growth in the manufacturing sector slowed to 5.8%, as against 9.6% in the previous quarter - a rate of increase that would be the envy of many developed economies.

The BBC's Karishma Vaswani in Mumbai said the rising cost of living had had a negative impact on consumer spending and the situation was likely to get worse before it got better.

India's poorest were being hardest hit and the government's success in lifting millions out of poverty in recent years was now under threat, our correspondent added.

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