MUMBAI: India’s economic growth slowed to 7.1 per cent in the second quarter, official data showed Friday, as its banks endure a liquidity crunch that is hampering investment in Asia’s third-largest economy.

GDP expansion missed the rate experts say India must consistently hit if Prime Minister Narendra Modi, up for re-election next year, is to fulfil his pledge of creating millions of jobs.

Central Statistics Office figures showed GDP growth for July to September of the 2018-19 financial year slowed from 8.2 per cent in the previous quarter.

Despite the slowdown, the latest figures were up from 6.3 per cent for the same period last year and reinforce India’s status as one of the world’s fastest-growing economies.

However analysts say the country needs to regularly record growth of at least eight per cent to generate employment for the millions of Indians who enter the workforce every year.

“India needs to grow at 8 per cent or over for several years,” Ashutosh Datar, an independent economist based in the commercial capital Mumbai, told AFP.

“Any fall in GDP figures below this will have very significant ramifications for the economy.

“And anything below seven per cent would potentially hamper job creation and also be undershooting our growth potential,” he added.

Business-friendly

Modi was swept to power in 2014 on a business-friendly manifesto that included a pledge to create 10 million jobs a year.

India does not release officials jobs data but the opposition Congress party accuses the government of failing to meet the target and is making an issue of it ahead of a general election expected in April or May.

“These GDP figures are a sign of the government’s performance before next year’s general elections and an indicator of the mood of the economy,” said Sujan Hajra, an economist at Anand Rathi securities.

“Any fall in the numbers will increase scrutiny and dent the public perception,” he added.

Business sentiment has been hit by a credit squeeze sparked by a series of defaults by debt-laden IL&FS, a non-banking financial institution that is responsible for huge investment in infrastructure projects.

The defaults have shone a spotlight on India’s “shadow banks” and led to billions of dollars in loans drying up.

They are also reportedly the source of a dispute between the government and India’s central bank, the Reserve Bank of India (RBI).

The finance ministry has been pushing the RBI to ease lending norms at mainstream commercial banks to boost loans for small businesses and also help meet shortfalls caused by the near collapse of IL&FS.

India’s quarterly growth fell as low as 5.6 per cent in mid-2017 as the economy reeled from a shock cash ban that scrapped 86 per cent of currency notes and a new nationwide goods and services tax.