'Make-or-break time' for India as economic boom begins to slow down

The Indian economic boom hasn't yet turned to bust – but the euphoria of recent years, as the country expanded at record rates, has given way to concern after figures confirmed growth in the first three months of 2012 had relaxed to its lowest level in nine years.

The economy expanded at a rate of 5.3 per cent between January and March. Although well ahead of richer nations in the West, the figure was the weakest since 2003 and marked a significant slowdown from the 9.2 per cent expansion seen a year earlier.

"This is definitely a very important signal for the government – this is a make-or-break situation for India and the government has to step on the panic button," Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai, told Reuters. "If the government doesn't step in now, India's sovereign ratings may be jeopardised."

The pullback will heap pressure on the Prime Minister Manmohan Singh, whose Congress party leads the coalition government. It has been criticised for stalled reforms and faces growing public opprobrium over a series of high-profile corruption scandals.

The Finance Minister Pranab Mukherjee pinned the blame for the growth figures on a poor performance in the manufacturing sector, which shrank by 0.3 per cent in annual terms. The key agricultural sector, though stronger, also suffered a slowdown.

The economy, meanwhile, continues to labour under the burden of stubbornly high inflation, which poses yet another headache for Dr Singh's administration.

The government's precarious position was underscored yesterday by a nationwide strike against a hike in petrol prices. The protest – organised by the opposition – left thousands stranded at railway stations, bus terminals and airports in numerous towns and cities.