A slowdown in India's economy in the last quarter will increase calls for Prime Minister Narendra Modi to step up reforms but was less severe than feared, giving the central bank ammunition to resist government pressure to cut interest rates.

Gross domestic product (GDP) expanded 5.3 per cent in the July-September quarter from a year earlier, as a manufacturing slump took the bounce out of Asia's third-largest economy. Growth in the previous quarter was 5.7 per cent.

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

'Now the onus is on the government to boost growth by reviving the investment climate and get reforms moving,' said HDFC Bank senior economist Shivom Chakrabarti. '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 will reiterate his request that Reserve Bank of India governor Raghuram Rajan cut interest rates when the central bank holds it policy review on Tuesday, ministry officials said.

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

Economists said a cut was unlikely, although markets have priced in a 25 basis point cut in the repo rate to 7.75 per cent.

Poor corporate earnings in the September quarter highlighted weak consumer demand.

The global outlook has not helped, with India's exports slowing in the second quarter after orders from Europe dropped. Trends suggest overall growth will likely be at the lower end of the government's 5.4-5.9 per cent target for the fiscal year.

That would be an improvement on the previous two years of less than 5 per cent growth, the weakest phase since the 1980s, but still far too slow to generate the jobs needed for India's rapidly expanding workforce.

Data yesterday showed that seven months into the financial year the fiscal deficit is at 90 per cent of its full year target as tax income fell short. Jaitley may choose spending cuts to meet his deficit goal, at the cost of further pressure on demand.

The government is hopeful of pushing several more reforms in the next few weeks, including looser foreign investment restrictions on insurance, overhauling land laws and new tax measures, but must overcome opposition in parliament.

This week parliament approved changes to labour laws to loosen regulation on small businesses.

In the new year, all eyes will be on Jaitley's February budget. Some analysts say markets could turn on the government if it fails to prove its commitment to structural reform.-Reuters