New Delhi: The Indian economy grew at its slowest pace in four years at 4.4% in the first quarter (Q1, or April-June) of the current fiscal year 2013-14, compared with 4.8% during the preceding quarter (January-March) of the last fiscal, belying hopes of the economy having bottomed out.

Seen from another, less reliable, yardstick of gross domestic product (GDP) at market prices, India actually grew at 2.4%—slower than the revised growth rate for the US economy at 2.5%—in the April-June period.

While agriculture grew 2.7% in the first quarter, mining and manufacturing contracted 2.8% and 1.2%, respectively. Electricity grew 3.7% and construction 2.8% during the quarter.

In services, only community, social and personal services—representing government expenditure—grew faster in the first quarter at 9.4%, compared with 8.9% during the same quarter a year ago.

Trade and hotels grew at a meagre 3.9%, while financing, insurance and business services grew at a robust 8.9% in the fiscal first quarter.

Prime Minister Manmohan Singh on Friday said he is still hopeful that the country would grow at 5.5% in the fiscal year 2013-14, rejecting projections that growth may slow below 4% this year. “We have the willpower to pull back the economy to 8% growth rate," he declared.

France’s biggest listed bank BNP Paribas SA on Wednesday had pared its Indian growth projection for 2013-14 to 3.7% from its earlier estimate of 5.2%, holding that there are no bright spots for the economy except a good monsoon and an expected good autumn harvest.

Commenting on the GDP data, economic affairs secretary Arvind Mayaram said growth in the second quarter will improve and growth in the third and fourth quarters will be better.

Pronab Sen, chairman of the National Statistical Commission, said it was a common mistake to only look at the GDP growth at factor cost while ignoring GDP at market price data, which he said was the actual comparable data with GDP figures of other countries.

The Central Statistics Office (CSO) data shows GDP growth at market price was only 2.4% against GDP growth at factor cost of 4.4% for the first quarter. GDP at market price is calculated by adding indirect taxes to GDP at factor cost while subtracting subsidies.

“The lower GDP at market price compared to GDP at factor cost is because the subsidy component is growing extremely fast and the government is borrowing to fund subsidy. That should be worrying," Sen added.

Crisil Ltd chief economist D.K. Joshi said that unlike the sharp V-shaped recovery from the Lehman Brothers crisis in 2009, this time the growth is following an L-shaped trajectory and is likely to oscillate around 5% in 2013-14. “We expect a mild recovery from here onwards mostly due to good farm output," he added.

Sen said he is not sure a good monsoon will lead to a revival in rural consumption. “Bumper crop production may actually lead to fall in agricultural prices and lesser income for farmers. Income effect may actually be small or negative," he added.

India’s economic risks have been intensified by slowing economic growth, rising inflation, a high current account deficit, a sharply depreciating rupee and fluctuating equity markets. The US economy grew at its fastest pace in more than two years at a revised 2.5% in the April-June quarter, compared with an earlier estimate of 1.7%, bolstering the case for the Federal Reserve (Fed) to wind down its monetary stimulus programme.

Indian currency and equity markets have seen huge volatility after Fed chairman Ben Bernanke in May indicated a tapering off of its bond-buying activity. The rupee, which posted its biggest single-day fall in 20 years on Wednesday to 68.83 against the dollar, has since recovered, closing at 65.71 against the dollar on Friday.

Since January, the rupee has weakened 16.3%—the biggest loser among Asian currencies in that period. BSE’s benchmark index, the Sensex, halted its five weeks of declines and climbed 218.68 points to close at 18,619.72 on Friday, after the Prime Minister said policy changes in the past year will help stem the rupee’s slide, and as oil prices fell.

On the demand side, investment as represented by gross fixed capital formation contracted 1.2% in the first quarter, compared with 3.4% growth in the fourth quarter of the last fiscal year, signalling worsening investor sentiment. Private consumption expenditure, the other big driver in the economy, grew at a meagre 1.6% in the first quarter compared with 3.8% in the fourth quarter of 2012-13.

Nevertheless, the worrying economic situation in India is unlikely to deteriorate to a crisis similar to that of 1991, when the country had to seek a bailout from the International Monetary Fund to meet a balance of payments crisis, rating agency Standard and Poor’s (S&P) said on Wednesday.

A survey by CARE Ratings of the Indian economy and the investment climate among 150 companies, released on Wednesday, found that a majority of the companies expected the economy to grow faster than last year’s 5% and the rupee to settle above 60 to a dollar in the current fiscal year.

The country’s fiscal deficit during the first four months (April-July) of the fiscal year was 62.8% of the full-year target, compared with 51.5% during the same period a year ago, government data released on Friday showed. The government also exhausted 73% of the revenue deficit target in the four-month period, compared with 61.3% during the same period a year ago.

Facing a similar situation to overshoot the fiscal deficit target for 2012-13, finance minister P. Chidambaram undertook a massive compression of Plan expenditure to contain the fiscal deficit at 4.9%.

Chidambaram on Monday suggested a 10-point programme to revive the economy, but said the immediate priority of the government is to contain the fiscal and current account deficits in the current fiscal year. “We will contain fiscal deficit at 4.8% of GDP and the current account deficit at $70 billion this year," he told the Lok Sabha.

But Moody’s said on Thursday that the food security Bill passed this week by the Lok Sabha will worsen India’s economic imbalance and was a negative development for the country’s sovereign rating. It said India’s fiscal deficit is already higher than that of its emerging market peers and the Bill will raise government spending on food subsidies by another 1.2% of GDP per year.

Moody’s and Fitch Ratings have a stable outlook on India at their lowest investment grade rating, but S&P has a negative outlook. In May, S&P warned there was a one-in-three chance of a downgrade to junk status in the next 12 months.

The government has allocated 90,000 crore for food subsidies in 2013-14, while its calculations suggest it will need around 1.24 trillion after the food security Bill becomes a law and is implemented.

PTI contributed to this story.

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