India posted its slowest economic growth in six quarters on Tuesday, with output up 7.7 percent year-on-year as expansion was held back by the longest stretch of monetary tightening in a decade.
The figure for March-June slightly outpaced market expectations, but was just below the 7.8 percent expansion logged in the previous quarter. Analysts had expected growth of 7.6 percent for the three months.
Last week the central bank, which has hiked interest rates 11 times in 18 months as it struggles to curb near double-digit inflation, warned of "a difficult year".
The rises in the cost of borrowing have slowed investment and consumer demand in Asia's third-largest economy.
"Industrial output growth has been on a sustained downtrend," said Capital Economics before the data were released.
Economists say the central bank, which has said it is unwilling to accept inflation of 9.22 percent as "the new normal", could raise rates again at its next policy meeting in September.
While 7.7-percent expansion appears rapid compared with sluggish Western growth, economists say the slowing of India's growth rate will undermine government efforts to tackle the country's endemic poverty.
The administration of Prime Minister Manmohan Singh, hamstrung by debt, lacks the fiscal firepower to stimulate the economy, making it less able to weather another global downturn after the financial crisis of 2008-09.
The growth figures followed a survey by the Federation of Indian Chambers of Commerce and Industry Monday which showed business confidence had slumped to a two-year low, as companies were rattled by the slowing of the domestic and global economies.
The survey, covering sectors from textiles to consumer goods, reflected "growing apprehensions about the world economy entering into another recession", the business group said.
"At the domestic level, rising interest costs and weak domestic demand -- both in part attributable to the contractionary monetary policy pursued by the Reserve Bank of India (central bank) -- are taking their toll," it added.
The central bank expects economic growth of eight percent this fiscal year to March 2012 after the economy expanded by 8.5 percent the previous year.
But some economists expect growth in the low seven percent range as rate hikes bite.
The data released Tuesday showed construction output up just 1.2 percent in the quarter, while manufacturing increased 7.2 percent.
Mining grew by just 1.8 percent, while farm output rose 3.9 percent.