Belying expectations of recovery, economic growth slipped further in the July-September quarter to 5.3 per cent, raising fears that the slowdown may pull down the annual growth rate to decade's low level.
The gross domestic product (GDP) was 5.5 per cent in the April-June quarter of 2012-13 fiscal. It was 6.7 per cent in the July-September period of the previous fiscal.
Dragged down mainly by farm and manufacturing sectors, the growth rate in April-September worked out to be 5.4 per cent, against 7.3 per cent in the same period a year ago.
Describing the economic growth rate of 5.3 per cent as "below expectations", Finance Minister P Chidambaram said it was mainly due to scanty rainfall and poor showing by the manufacturing sector.
Prime Minister's Economic Advisory Council Chairman C Rangarajan said that the GDP growth in the current fiscal should be between 5.5-6 per cent and the a rate cut by the Reserve Bank would depend on lowering of inflation.
"It is a bit lower than expected. I certainly feel next half should be better....numbers are not important, we can say it has bottomed out and is beginning to go up again," Planning Commission Deputy Chairman Montek Singh Ahuluwalia said.
Reacting to the growth figure, industry chambers demanded that the government should push forward with the reforms to bring economy back on high growth path.
"It is imperative for the government to give a renewed thrust to the manufacturing sector which is not showing signs of any sustained pick-up," FICCI President R V Kanoria said.
Stock markets, however discarded the weak GDP numbers, with BSE Sensex rising 169 points to close at 19,354 points.
During the July-September of this year, manufacturing sector grew marginally by 0.8 per cent, against 2.9 per cent growth in the same period of 2011-12. Farm sector output expanded by just 1.2 per cent in the July-September period this fiscal against 3.1 per cent in the same period last year.
The economic growth had declined to a nine year low of 6.5 per cent in the 2011-12 fiscal. In the current fiscal, the RBI has projected the GDP growth at 5.8 per cent in the current fiscal.
Chidambaram had earlier said the economy faces a "difficult situation" and the way to overcome this difficult situation is through innovation and increasing the production of goods and services.
Investment activity picked up in September quarter, as the growth in gross fixed capital formation stood at 4.1 per cent, up from 0.7 per cent growth in first quarter, Ficci said, adding that "it may still be early to say that the slowdown in investment activity has bottomed out".
The RBI is scheduled to come out with its mid-quarter policy review on December 18 and analysts expects that it will reduce the cash reserve ratio (CRR).
"The RBI is likely to reduce the CRR by 25 bps in the December mid-quarter policy review to ensure credit flow to productive sectors," ICRA Senior Economist Aditi Nayar said.
During the July-September quarter, mining and quarrying sector showed some improvement and recorded a growth of 1.9 per cent during the quarter, as against a contraction of 5.4 per cent in the second quarter of 2011-12.
In the second quarter, trade, hotels, transport and communications segment also witnessed lower pace of growth at 5.5 per cent compared to 9.5 per cent expansion in the same quarter in year ago.
The growth rate of electricity, gas and water supply also dipped to 3.4 per cent in the second quarter, from 9.8 per cent witnessed in the same quarter of 2011-12.
Construction sector expanded by 6.7 per cent, as against 6.3 per cent in the year-ago period.
Growth rate of services sector, including insurance and real estate, stood at 9.4 per cent in the second quarter, against 9.9 per cent recorded in same quarter last fiscal.
"Do not expect any major change in the December quarter figures," research firm KASSA's Director Siddharth Shankar said.