* GDP for July-Sept grew 5.3 pct y/y, versus 5.4 pct
* Manufacturing almost flat at 0.8 pct y/y, farm growth 1.2
* Government faces opposition to economic reforms
(Adds fiscal deficit, capital formation)
By Frank Jack Daniel
NEW DELHI, Nov 30 (Reuters) - India's economy extended its
long slump in the last quarter, with lower-than-expected growth
keeping it on track for its worst year in a decade and
underscoring the urgency of politically difficult reforms to
spur a revival.
The economy grew 5.3 percent from a year earlier in the
July-September period, provisional gross domestic product (GDP)
data showed on Friday, below the 5.5 percent posted
for the three months ending in June.
"It is essential that the reform agenda is carried forward
with vigour and that the recently announced measures are
implemented," leading business chamber FICCI said.
Prime Minister Manmohan Singh's chief economic advisor
forecast full-year growth of between 5.5 and 6 percent, which
would be the slowest since 2002/3.
"It will be between the two, because in order to get 6
percent we really need very strong growth in the second half,"
advisor C. Rangarajan told TV network CNBC.
A growth rate below 6 percent for the third quarter in a row
is damaging for a country that aspires to at least 8.5 percent
expansion to provide jobs for its burgeoning population, and
makes it tougher for Singh to fund flagship welfare programmes.
The quarterly number was lower than a Reuters poll had
forecast and matched the January-March quarter, which was the
weakest growth rate in three years. However, economists say
inflation worries mean the Reserve Bank of India (RBI) is
unlikely to cut interest rates when it meets on Dec. 18.
Facing the prospect of the downturn stretching into a
general election due in 2014, Singh launched some of the most
daring initiatives of his eight-year tenure in September,
including raising subsidised diesel prices and opening the
airline and retail sectors to foreign players.
These moves are likely to encourage investment going
forward, and Friday's figures showed capital formation at 33.8
percent of GDP, its highest for at least two years.
Singh, however, is fighting to defend his reforms in
parliament, where a non-binding vote on the supermarket policy
will be held on Wednesday. The outcome may test the minority
government's appetite for further reforms ahead of a string of
state elections starting in December.
RECOVERY SEEN NEXT YEAR
Despite the current gloom, most economists expect the
business-friendly measures to help investment to gradually pick
up and the economy to slowly recover next year.
"We are getting close to the bottom, although we are most
likely talking about a `bathtub shaped` recovery with some
bottom scraping in coming quarters," HSBC Global research said
in a note.
The government and economists warn more needs to be done to
attract capital and modernise India's decrepit infrastructure.
Opposition parties say the reforms hurt the common man and
weaken regional governments.
India is battling weak consumer demand in overseas and
domestic markets. The rupee remains weak and the trade
deficit the widest ever after merchandise exports, which make up
about 10 percent of GDP, fell for six straight months.
Industrial output has contracted in four out of last six months.
Reaction to the data was muted from financial markets, which
were still cheering the end of a deadlock in parliament that had
threatened to hold up debate on reforms to attract foreign
investment in the insurance and pension industries.
Mumbai's main stock index hit a 19-month high.
Markets were also buoyed by a mildly upbeat view from
Goldman Sachs on Thursday, with a report forecasting India's
economic growth was likely to accelerate to 6.5 percent in 2013.
CHIDAMBARAM PRESSES FOR RATE CUT
Growth was dragged down by subdued manufacturing output
growth of 0.8 percent on the year and farming output of 1.2 pct.
Finance Minister P. Chidambaram on Friday again pressured
RBI to cut interest rates, saying its tight monetary policy was
a drag on the economy.
Low growth is making it harder for Chidambaram to rein in a
wide fiscal deficit, which global ratings agencies say needs to
be controlled if India is to avoid losing the investment grade
designation on its sovereign debt.
In a major relief to the government on Tuesday, rating
agency Moody's reaffirmed its stable outlook on India.
The deficit during the April-October period
rose to 3.68 trillion rupees ($67.5 billion), or 71.6 percent of
the budgeted full fiscal year 2012/13 target, data showed on
Chidambaram recently revised the target up to 5.3 percent
form 5.1 percent, but most economists expect the government to
overshoot this and hit around 5.5-5.6 percent.
The government says India needs to take more steps quickly,
including speeding up approval for infrastructure projects,
overhauling the tax system and reducing its swollen deficit to
revive capital investment.
(Reporting by Rajesh Kumar Singh, Manoj Kumar and Arup
Roychoudhury in NEW DELHI and Shamik Paul in MUMBAI; Writing by
Frank Jack Daniel; Editing by Alex Richardson)