By ANANT VIJAY KALA

NEW DELHI—India projected that economic growth in the current fiscal year would be its weakest in a decade, dealing a setback to hopes that the world’s second-most-populous nation would be a significant driver of global recovery.

Gross domestic product is estimated to grow 5% in the year ending March 31, weaker than the previous year’s growth of 6.2% and down sharply from the 9%-plus growth rate recorded in early 2011, India’s statistics ministry said Thursday.

The precipitous slowdown could hurt global growth prospects by depriving Western countries seeking to boost exports to a vibrant marketplace. It may also discourage global investors scouting for opportunities in ast-growing emerging economies.

The cause is the slow pace of infrastructure development due to bureaucratic hurdles and policies unfriendly to business, economists say. Elevated interest rates to tackle persistently high inflation, in addition to ballooning fiscal and current-account deficits, also hurt growth prospects, the economists say.

India’s growth may look enviable compared with some Western economies, many of which are close to or in recession. But observers say a growth rate of 5% isn’t enough to develop a country in which about 30% of the 1.2 billion population lives on $1.25 a day, according to an International Monetary Fund report, and 13 million people reach working age every year and need jobs.

“Stronger growth is absolutely imperative for India because uUnless the economy is able to create more jobs, we will see the risk of social unrest continue to rise,” said Anjalika Bardalai, an economist with the Eurasia Group, a research and risk consultancy.

Analysts are pondering the length of the slump. Leif Eskesen, an economist at HSBC, said Indian growth is expected to pick up in the second half of 2013. He said China already is showing signs of having emerged from its slowdown. Growth in China in the last three months of 2012 accelerated to 7.9% from 7.4% in the previous quarter.

Some economists were surprised by India’s weak growth estimate. Less than two months ago the finance ministry predicted a 5.8% expansion in the year to end March.

And Finance Minister P. Chidambaram said Thursday that growth will likely be better than the 5% estimate, as leading indicators have shown signs of improvement since November. “We have taken and will continue to take appropriate measures to revive growth,” he said.

Since September, the government has taken several measures to boost economic activity, such as allowing foreign supermarket chains to set up shop in India, permitting foreign airlines to buy stakes in local carriers, and raising the state-regulated prices of some fuels.

Abheek Barua, chief economist at HDFC Bank, said speeding environmental clearances, acquiring land, and securing fuel supplies are needed to boost growth. Industry representatives frequently cite those three factors as obstacles to expansion.

Thursday’s data show growth in manufacturing and farm output is expected to slow from the year earlier. Another concern is a slowdown in service-sector output, which accounts for about 60% of India’s GDP and had been holding up even as other sectors were struggling. Service-sector output is forecast to grow 6.6% this fiscal year compared with an 8.2% expansion last year. Manufacturing output would likely grow just 1.9% and farm production 1.8%, the data showed.

Economists expressed concern that the slowdown was getting more generalized, with investments and consumption suffering.

Government and private consumption each grew 4.1%. Citigroup said that marked a sharp deceleration from levels of about 8% over the past six years.

Partly to blame was the diminishing appetite of Indian consumers to spend in the wake of subdued economic prospects. A clampdown on spending by the federal government in recent months to improve its finances also has contributed to weaker consumption.

Source: WSJ