Page last updated at 08:56 GMT, Friday, 29 August 2008 09:56 UK

India's economic growth slowing

Child selling food
The price of many basic foods are rising

India's economy grew at a slower-than-expected annual rate of 7.9% in the three months to June, its slowest rate of growth in more than three years.

This compared with 8.8% in the previous quarter and 9.2% seen in the same quarter a year earlier.

High interest rates, rising oil and food prices are likely to contain growth at about 7.5%, analysts said, down from 9% or more in previous years.

India has struggled to contain inflation, which is at a 13-year high.

Monetary tightening

The Reserve Bank of India has been raising rates to cope with rising inflation, and they now stand at 9%, an increase of 1.25% since April.

"These are numbers that shouldn't surprise," said Saumitra Chaudhury, a member of the Prime Minister's Economic Advisery Council.

"When you have monetary tightening, you do get lower growth. That was expected," he said. "But it's not terribly low; 7.9% is still high by historical standards."

Analysts doubt the central bank will ease interest rates.

"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.

Separately, India's annual inflation dipped to 12.4% for the week ending 16 August - down from 12.63% a year earlier - as fuel and power costs eased. This time last year, inflation stood at 4%.



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