Indian Economy slows to 7.9 percent

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Sept. 1 – India's first-quarter economic growth slowed to 7.9 percent, the weakest in three-and-a-half years as interest rate hikes hit demand, but AFP quoted analysts said long-term prospects still looked solid.

The figure for the three months to June was far below the previous quarter's growth of 8.8 percent and the 9.2 percent expansion logged by Asia's third-largest economy in the first quarter a year earlier.

"Growth has further to fall from here," said HSBC economist Robert Prior-Wandesforde, at the same adding the downturn was "cyclical not structural in nature," and there was "no need to panic about the country's long-term growth prospects."

India's economy, which has drawn billions of dollars in foreign investment, has been steadily losing steam as the central bank has aggressively raised interest rates to curb inflation now at 13-year highs.

It was the weakest quarterly expansion since the last quarter of calendar 2004 and below market expectations that the economy would grow by 8.1 percent.

However, Indian Finance Minister Palaniappan Chidambaram noted there were still "very few countries which are growing at near eight percent" and projected growth for the full year to March 2009 of "close to eight percent."

Despite some slowdown in the second half of the F2008, total investments (private corporate, government and households) during the year is estimated to have reached a new high of 37 percent of GDP, up from 35.9 percent in F2007 and 22.8 percent in F2002. The key driver of this improvement is the sharp pick-up in private corporate sector investments to 16.1 percent of GDP in F2008 from the bottom of 5.2 percent in F2001. The Economic Times estimates that public sector investments increased to 8.2 percent of GDP in F2008 from 6.1 percent in F2003. However, we estimate household investments have been stable at 12.7 percent of GDP in F2008 against a peak at 13 percent in F2004.