India's Economic growth sags to 6.1%

India's economic growth slowed to 6.1 per cent in the December quarter, the slowest pace in over two years, on weak manufacturing and mining.

High interest rates, rising production costs, stalled investment, policy paralysis and corruption scandals have all taken a toll on Asia's third largest economy.

The data released Wednesday for the December quarter mark a slowdown from the July-September quarter, when the economy grew 6.9 per cent. India's benchmark stock index was down fractionally amid gains in other Asian markets.

Agriculture grew 2.7 per cent in the October-December quarter from a year earlier, mining fell 3.1 per cent and manufacturing eked out a 0.4 per cent rise.

Indian policy makers have struggled with a toxic combination of high inflation and slowing growth. The central bank hiked interest rates 13 times before pausing in October and has urged New Delhi to unblock supply constraints to help fight inflation and better balance the budget, which will be presented in March.

The government now says the economy will likely grow around 7 per cent for the year ending March, down from earlier expectations of 9 per cent.

"This is a weak result for India, which has a potential GDP growth rate around 7 per cent," said Glenn Levine, a senior economist at Moody's Analytics.

He said the fall in fixed investment was "most disappointing," as it reflected declining business confidence and higher interest rates. On the bright side, private consumption continued to grow, a reflection of India's rising middle class, he said.

"The economy has slowed in the face of weaker external demand, rising global uncertainty, elevated interest rates, high inflation, a stagnant government, and declining business confidence," he said.

"This will cap growth in 2012, especially through the first half where GDP growth is likely to dip below 6 per cent before lower interest rates and a global recovery lift growth through the second half."