Gross domestic product grew 6.9% from a year earlier, the government said Wednesday. The reading was in line with the median estimate in a poll of 19 economists, but was lower than the 7.7% increase in the April-June quarter as manufacturing slowed sharply and mining output fell.
The economy had expanded 7.8% in the January-March quarter.
"We aren't comfortable with the reading," Finance Secretary R.S. Gujral told reporters.
Government bonds came off early highs on profit-taking after the data, with the 8.79% 2021 bond last at 100.11 rupees compared with 100.17 rupees before.
Share prices recovered in choppy trade with the benchmark Sensitive Index 0.3% up at 16,048.68.
Aggressive rate increases by the Reserve Bank of India over the past 20 months to cool inflation have crimped industrial expansion in Asia's third-largest economy, adding to pressure from a gloomy global economy that has hurt demand for exports.
The slow pace of economic reform and a series of graft charges against the government have further soured investor sentiment, affecting foreign investment.
"Growth prospects don't look very bright for the rest of the fiscal year because of global headwinds, lagged impact of rate hikes on demand and the government's slow decision making," said D.K. Joshi, chief economist at credit rating company Crisil.
The sharp slowdown in growth cements expectations that the RBI will hold its policy rate steady at its next review on Dec. 16, and may even begin cutting rates in the first half of next year if inflation cools to tolerable levels.
"Food inflation is beginning to slow and the slowdown in demand should also have an impact on [headline] inflation by March," Mr. Joshi said, adding that a cut in the policy rate in April-June couldn't be ruled out.
The RBI has raised its lending rate 13 times since March 2010 as it struggles to tame inflation, putting it at odds with other central banks in the region that have already begun cutting rates as growth worries take center stage.
Still, inflation has remained sticky, hovering over 9% for 11 consecutive months through October. A favorable statistical base and a fresh boost to farm supplies around December are expected to help slow inflation to 7% by end-March.For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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