Kartik Goyal Mumbai

India’s economic growth slowed last quarter, holding at less than 5 percent and denting the Congress party’s chances of extending its 10-year rule in national elections due by May.

Gross domestic product (GDP) rose 4.7 percent in the three months to December from a year earlier, compared with 4.8 percent in the previous quarter, the Statistics Ministry in New Delhi said on Friday.

Reserve Bank of India governor Raghuram Rajan has raised interest rates three times since taking charge in September last year, saying curbing inflation is the best way to generate sustained long-term growth. The prospects for a rebound in GDP are likely to depend on whether the elections produce a stable coalition with a clear mandate.

“The underlying trend is still weak, and consumption on the margin is slowing,” ICICI Securities primary dealership economist Prasanna Ananthasubramanian said. “The outlook depends on the outcome of the elections and the continued push for investments.”

Manufacturing output shrank 1.9 percent in the three months to December from a year earlier, and mining output shrank 1.6 percent, the data showed. Farm output grew 3.6 percent while financing, insurance and real estate services rose 12.5 percent.

“This is the seventh consecutive quarter of sub 5 percent growth, and the slowdown has become deeply entrenched in the economy,” ICICI Bank’s Kamalika Das said in a note.

A deceleration in agricultural growth was a key factor in the overall slowdown in GDP in the quarter, economists at Citigroup said. The 3.6 percent increase in farm output came after a 4.6 percent gain in the quarter before and compared with Citigroup expectations of a reading above 5 percent.

India’s government forecasts the economy will expand 4.9 percent in the fiscal year to March, compared with a decade-low 4.5 percent in the previous year.

That target now appeared “challenging” and would need 5.7 percent growth in the current quarter in order to be met, Citigroup’s Rohini Malkani and Anurag Jha wrote.

The rupee rose 0.4 percent to 61.7575 per dollar at the close in Mumbai on Friday. The yield on the government bond maturing in November 2023 fell to 8.86 percent from 8.92 percent the previous session. The GDP data were released after trading closed on Friday.

Opinion polls show Prime Minister Manmohan Singh’s Congress party losing power in the elections. The main opposition Bharatiya Janata Party would win 217 of 543 seats in the lower house of parliament, according to a survey released on February 22 by ABP News and Nielsen. – Bloomberg