Economic growth slows to 5.3 percent in Sept quarter

By Manoj Kumar

NEW DELHI (Reuters) - Data released on Friday showing a slowdown in India's economy will put the Reserve Bank under renewed pressure to cut interest rates, while Prime Minister Narendra Modi takes his time over reforms needed for a revival.

India's gross domestic product expanded 5.3 percent in the July-September quarter from a year earlier, as a slump in manufacturing took the bounce out of Asia's third-largest economy. Growth in the June quarter had spurted to a 2-1/2 year high of 5.7 percent.

    Thanks to growth in services and stronger-than-expected farming after a bad monsoon, the reading was higher than predicted by economists polled by Reuters who on average forecast growth of 5.1 percent.

"Now the onus is on the government to boost growth by reviving the investment climate and get reforms moving," said Shivom Chakrabarti, Senior Economist with HDFC bank. "That will have a more pronounced impact on growth in the next fiscal year."

Worried by the growth performance, and encouraged by low oil prices and falling inflation, Finance Minister Arun Jaitley has asked Reserve Bank of India Governor Raghuram Rajan to cut interest rates when the central bank holds it policy review on Dec. 2, ministry officials have told Reuters.

Rajan can be expected to argue that with the slowdown not as severe as some had forecast, inflation concerns carry more weight.

"If it was a very, very low number, there would have been pressure on the governor to act immediately. The better than expected overall GDP growth gives him that cushion until the next policy (review) to take a call on rate cuts," said Upasna Bhardwaj, Economist at ING Vysya Bank.

Markets will listen carefully for any word of a meeting between the two, as yet unscheduled, in the days before the review.

Economists polled by Reuters said a cut was unlikely, although markets have priced in a 25 basis point cut on the repo rate to 7.75 percent.

(Reporting by Manoj Kumar; Editing by Frank Jack Daniel)