MUMBAI: India's
economic growth slowed for the fifth straight quarter in the April-to-June
period to 5.0 percent, government figures showed Friday in a fresh blow to
Prime Minister Narendra Modi. But in an effort to ease the liquidity crunch
that has dogged Asia's third-largest economy, the government at the same time
announced the merger of 10 public sector banks into four new lenders.

The Indian
economy has been suffering from weak consumer demand that saw car sales fall
for the ninth month running in July, leading to calls from industry for Modi to
stimulate growth. Having already this year lost to China its status as the
fastest-growing major economy, the latest growth figure for India's first
fiscal quarter fell well short of market expectations of 5.7 percent. This is
despite India's central bank, reportedly under government pressure, cutting
interest rates four times this year to a nine-year low in an effort to boost
activity.

"The growth
figures are lower than our projections and reflect major economic
slowdown," Sameer Narang, chief economist at the Bank of Baroda told AFP.
Sujan Hajra, an economist at Anand Rathi securities, said it "reflects
structural problems with the Indian economy that need long-term
solutions". Narang added though he was hopeful that measures announced
this month by Modi's newly re-elected government would give the economy a boost
in the coming quarters.

On Wednesday,
India's cabinet eased restrictions on foreign investment in four key sectors,
including coal mining, in an effort to attract more capital from abroad. The
government also said it was bringing forward a $10-billion liquidity lifeline
for banks and rolling back a levy on equity sales that had spooked foreign
investors. The cash-strapped government is also getting a $24-billion windfall
from India's central bank, potentially giving it extra room to cut taxes and
stimulate the economy.

Banking behemoth

India's
right-wing government won a landslide election victory in May even though its
economic record has been patchy, with unemployment at its highest since the
1970s. While the economy has regularly grown at about 7.0 percent since Modi
came to power in 2014, it has failed to create enough jobs for the 1.2 million Indians
entering into the labor market each month.

Just ahead of
Friday's growth figures announcement, Finance Minister Nirmala Sitharaman also
announced the merging of 10 public sector banks into four lenders, in a major
overhaul of India's financial services sector. The four new banks will hold
business worth around 55.8 trillion rupees ($781 billion), or about 56 percent
of the Indian banking industry, Bloomberg News reported. The government will
also inject a combined 552.5 billion rupees into the new entities.

India, which has
the world's worst bad-loan ratio, will now have 12 state-run banks instead of
27, Bloomberg reported. "Banks will play an important role for (achieving)
a five-trillion (dollar) economy," said Rajeev Kumar, India's finance secretary.
"For that, we need banks which have extra lending capacity and have an
ability to give better services with modern techniques." - AFP