India's Economic Run

HONG KONG - With Western consumers tightening their belts, companies still in budget-cutting mode and inflation raging, the Indian economy was bound to slow from its spectacular pace of recent times.

New Delhi's Central Statistical Office revealed Friday that India's economic growth slowed to 7.9% annually in the April-June quarter, down from 9.2% in the second quarter last year and easing off from the previous quarter's 8.8%. This is the first time India has recorded GDP growth lower than 8% in nine quarters, since December 2004.

A downturn in the manufacturing sector braked the Indian economy. According to the government figures published Friday, manufacturing growth was hit the hardest, dropping to 5.6%, from 10.9% last year.

Besides manufacturers, Indian information technology companies, whose success in recent years has been grounded on India's large population of low-wage but well-educated, English-speaking technicians, are also under threat as international banks, brokerages and other firms all started to cut their IT budgets amid the global credit crunch. (See “Slowdown Affects Indian’s IT Sector.”)

The decline of Indian economic growth is also a natural outcome of the Indian government’s monetary tightening measures to curb inflation. "These are numbers that shouldn't surprise," said Saumitra Chaudhury, a member of the Prime Minister's Economic Advisory Council and chief economist at the credit rating agency ICRA, a Moody's affiliate.

After a few months of tightening, India’s inflation, which hit a 13-year high in June, appears to have stabilized. On Thursday, the government reported that the wholesale price index, the nation's benchmark inflation indicator, fell to 12.4% for the week ending Aug. 16, from 12.6% the previous week.

Chaudhury expected the central bank to maintain interest rates when it next meets in October.

Two days before the GDP announcement, Moody's projected that India's economic growth would decelerate to 7.9% in the current fiscal year, from 9% in 2007-08 amid slowing credit growth and higher interest rates.

-- The Associated Press contributed to this article.