Page last updated at 09:25 GMT, Friday, 27 February 2009

Indian economy in sharp slowdown

Indian textile workers in Bangalore
India's government may have to revise its growth forecast.

India's economy grew by less than expected in the last three months of 2008, official figures have shown.

The country's gross domestic product (GDP) grew by 5.3%, compared with 7.6% in the previous three months and 8.9% in the same period a year earlier.

Agriculture, which makes up about a fifth of the economy was one of the sectors to see growth fall.

The global recession has cut demand for exports, and economists are calling for further measures to boost growth.

These have included a clamour for further interest rate cuts.

The data saw India's main stock exchange index, the Sensex fall by 2% on Friday.

Domestic demand

Observers say the data will come as a blow to the Congress-led government, which faces general elections by May.

It has predicted that the economy, which grew by 9% overall to March 2008, will expand by 7.1% in the 12 months to March this year.

However analysts say this will probably be revised down.

The sharp slowdown in both China and India, which have been among the world's fastest-growing economies, will have a significant impact on the world economy, with the major industrial countries already mired in recession.

India's economy is Asia's third-largest, and is largely driven by domestic demand. It has seen strong growth of 9% or more in the past three years.

But the slowdown has "dismissed speculation India is more resilient in this global turmoil because its economy is more domestically oriented," said Sherman Chan, an economist at Moody's Economy.com.

Meanwhile Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai said the growth figure was "way below my pessimistic expectations".

"Whatever the government is doing is not going to be very effective as large scale demand stimulus across the world has not proved to be effective in restoring business confidence."

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