India's economic growth plunges to six-year low of 5%

New Delhi(CNN Business) India's economic slump risks becoming a crisis, with growth plunging to levels not seen since Prime Minister Narendra Modi was elected in 2014 on a promise to turn the country into a global powerhouse.

Gross domestic product grew by just 5% in the three months to June, according to government data released Friday. That compares with growth of 8% in the same period last year. It was also a huge drop from growth of 5.8% recorded the previous quarter.

The latest decline was driven largely by slower private consumption and near stagnation in manufacturing, which was growing by 12% just a year ago. The rate of growth in agriculture more than halved in the June quarter.

Falling food prices and construction wages have put India's huge rural population under stress, and those problems have been exacerbated by a credit crunch following the near-collapse of one of India's biggest consumer finance providers in October last year.

Friday's data mean Asia's third biggest economy is now growing at its slowest pace in over six years.

It's also the weakest growth rate recorded under Modi, who first swept to power five years ago promising to take India's economy to new heights and create millions of jobs every year.

But the downward spiral has now lasted a year, unemployment is at its highest level in decades and India faces a steep road to recovery. This year could see the weakest growth since 2012.

"It is quite possible that India's full-year growth will slip below 6% in 2019," Priyanka Kishore, head of India at Oxford Economics, wrote in a research note.

Government scrambling

Several sectors of the economy have been struggling in recent months — the country's automotive industry has already shed hundreds of thousands of jobs, and consumer goods companies like Unilever (UL) are reportedly slashing prices because of slowing demand.

Since winning re-election by a landslide in May, Modi and his government have scrambled to boost the economy. A week ago, India unveiled tax breaks for startups, cheaper home and car loans, and an injection of 700 billion rupees ($9.8 billion) into state-run banks, among other measures.

A few days later, the government followed with an announcement that rules on foreign investment would be eased, opening up India's huge coal industry. It also said it would relax local sourcing regulations that have blocked companies like Apple (AAPL) and other global retailers from opening stores.

Another move came Friday just before the dire quarterly growth figures were released. Finance Minister Nirmala Sitharaman announced that 10 of India's state-run banks would be merged into four to boost lending to business.

"These are positive steps but are unlikely to lead to a swift rebound in growth," said Kishore.

No quick fix

Analysts say a lot more needs to be done.

"[The] government is taking steps to mitigate the difficulties faced by the economy but these measures will play out only in the medium term," Devendra Pant, chief economist at Fitch subsidiary India Ratings and Research, said in a statement after the figures were released. "There is no quick fix solution to the downturn which has been in the making for past few years."

Modi is getting help from the central bank, the Reserve Bank of India. It has slashed interest rates four times since the start of 2019 — bringing them to their lowest level in nine years — and earlier this week transferred excess reserves of around $25 billion to the government.

Pant said he expects "at least one more rate cut ... to boost demand."