NEW DELHI: India's economic growth slowed by more than expected in the quarter to June, according to data released yesterday that will worry Prime Minister Narendra Modi and prompt more urgent calls from his aides for interest rate cuts.
Gross domestic product expanded an annual 7% rate in the April-June quarter, government figures showed. That was slower than provisional growth of 7.5% in the previous quarter.
Analysts polled by Reuters expected growth for the quarter to come in at 7.4%, but a weak showing from the services sector acted as a drag on Asia's third-largest economy.
"Growth conditions are still weak and are picking up in a very, very gradual manner," said A. Prasanna, economist at ICICI Securities Primary Dealership.
The figures were the latest economic growth data to be released since the government introduced a revised formula for calculating GDP that some analysts have criticised.
India's government changed the way it calculates GDP in January, with officials saying the new method was closer to international standards.
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.
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.
Political acrimony, meanwhile, has left parliament paralysed. The last session ended without passage of a single reform legislation. Shilan Shah, India economist at Capital Economics, described the washout session as a "missed opportunity".
Yet India is on mend. Robust growth in indirect tax receipts points to a nascent revival in manufacturing sector. Foreign direct investments are up 30% from a year earlier.
However, the improvement in the economy is in large measure due to a crash in global commodity prices, which has cooled inflation and helped narrow the fiscal and current account deficits.
Sure, urban consumption demand is picking up, but rural consumers remain glum. With capacity utilisation rates showing no signs of improvement, firms are not in a hurry to invest in new plants and machinery.
Festering problem of bad loans, meanwhile, has impeded credit flow and delayed full transmission of interest rate cuts.
The growth 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% policy rate.
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.
While it has not ruled out further monetary easing, it has tied up future rate cuts to the inflation outlook.
Many in the government are worried that growth could slip below the official target of 8-8.5% for the year to March, and sees the RBI's caution as worsening the situation.
In a separate developmet, the RBI said yesterday that the State Bank of India and ICICI Bank, the nation's biggest state-run and private lender, respectively, were named as systemically important.
The term 'systemically important' banks, when roughly meant, are ascribed to those that are considered to be 'too big to fail'.
The RBI said the additional common equity tier-I requirements for such banks would be applicable from Apr 1, 2016 in a phased manner and would be fully effective from Apr 1, 2019.
"The additional common equity tier-I requirement will be in addition to the capital conservation buffer," it said.
While SBI will have to maintain 0.6% of additional common equity tier-I capital, ICICI Bank will have to maintain 0.2%.