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India grew 4.6 percent in first quarter, disappoints

Workers at a construction site below an elevated track, operated by Rapid MetroRail Gurgaon, in Gurgaon, India, in March 2014.
Kuni Takahashi | Bloomberg | Getty Images

India's economy grew by 4.6 percent in the first three months of the year and 4.7 percent for the year, coming in below Reuters expectations of 4.8 percent and 4.9 percent respectively.

This latest figure adds pressure on the new government to turn the economy around as it marks the second straight fiscal year of sub-5 percent growth for India and the worst slowdown in more than a quarter of a century.

The manufacturing sector suffered the biggest drop in the quarter and contracted 1.4 percent while farm output rose by 6.3 percent.

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"If you look at India's potential growth rate, it should be close to 7-8 percent", Arup Raha, chief economist at CIMB said to CNBC on Friday.

Despite two years of slow growth, economic conditions in India are widely expected to improve following the election of the new prime minister, Narendra Modi. Campaigning on a ticket of more investments and less red tape, the leader of the Bharatiya Janata Party (BJP) has already earmarked infrastructure as his main priority.

"Political change" is the only missing element to boost India growth, Hans Redeker, global head of foreign exchange strategy at Morgan Stanley told CNBC on Friday, adding that the country already ticks "all three boxes for long-term growth potential" - comprising demographics, potential for a productivity uplift and the possibility to leverage up.

Furthermore, signs of coordinated action between the new government and the Reserve Bank of India (RBI) to rein in the country's persistently high inflation received market approval on Friday.

On a visit to Japan on Friday, Raghuram Rajan, governor of the RBI said he expected to join hands with the government to bring down inflation, prompting a fall in Indian bond yields. Yields fell by four basis points to 8.61 percent following his remarks.

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