NEW DELHI (Reuters) - India’s gross domestic product data shocked again on Wednesday as economic growth unexpectedly slumped to its lowest in more than two years in the March quarter, stripping the country of its status as the world’s fastest growing major economy.

A worker carries coal in a basket in a industrial area in Mumbai, India May 31, 2017. REUTERS/Shailesh Andrade

Annual economic growth at 6.1 percent in the January-March period was even lower than the lowest analyst estimate of 6.5 percent in a Reuters poll. Overall, the median forecast of 36 analysts was for a year-on-year growth of 7.1 percent.

It was also lower than China’s growth of 6.9 percent for the first three months of 2017.

The March quarter growth figure is the lowest since the December quarter in 2014, when the economy registered a 6.0 percent growth, Reuters data shows.

While economists, in general, expected a spillover effect of Prime Minister Narendra Modi’s decision last November to scrap high-value old banknotes on economic activity, the extent of the slowdown was unexpected.

A Prasanna, an economist at ICICI Securities Primary Dealership, called the data “quite shocking”.

“While we agree that a slowdown...fits in with the theme of a slowdown post-November currency swap, the extent of slowdown is puzzling,” Prasanna said.

Modi’s unexpected decision was aimed at flushing out all the money Indians hide from the taxman, but it had pounded consumer demand in an economy where most people were paid and bought what they needed with cash.

Yet, the GDP data for the October-December quarter, when the cash crunch was at its worst, showed robust economic activity.

India doesn’t publish national figures on retail sales. But indicators such as car sales and quarterly earnings of consumer-facing companies since then showed a recovery in consumer spending.

“(It) doesn’t quite tally with other evidence which has tended to suggest that growth stabilised or picked up in last quarter,” said Shilan Shah, an economist at Capital Economics in Singapore.

SHARP UPWARD HISTORICAL REVISIONS

Some economists including Shah, however, said that the latest GDP figures were closer to the ground reality than the previous ones, which they said were guilty of overestimating growth by as much as 150 basis points.

The sharp slowdown is also being attributed to an unfavourable statistical base as last year’s growth figures for the same quarter were revised up by 1.3 percentage points to 9.2 percent.

The upward revision was done after factoring in newly rebased indices for wholesale prices and industrial production, which were released earlier this month.

Prasanna of ICICI Securities also faults the “deflator” for pulling down overall growth in the last quarter. The federal statistics office uses the deflator to strip out price changes to make quarters comparable.

Both wholesale price and consumer price indices have a representation, but the GDP deflator at 5.7 percent for the March quarter was higher than the average wholesale and consumer price inflation for the quarter.

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Wednesday’s figures, however, have not changed expectations for monetary policy. Analysts still expect the Reserve Bank of India (RBI) to keep interest rates on hold.

“We continue to expect the RBI to remain on pause, with any rate hikes ruled out,” said Shubhada Rao, chief economist at YES Bank.

FAULTLINES

The anomalies in the data, however, didn’t gloss over the underlying imbalances in Asia’s third-largest economy.

Growth is still being driven by consumer and government spending. And capital investments are showing no signs of revival.

Since taking office in May 2014, Modi has stepped up public spending to stimulate private investments. But even after spending billions on dollars on ports, roads, railways and power projects, an upturn in corporate spending remains elusive.

Capital investments fell an annual 2.1 percent in the March quarter.

“The biggest challenge is the lack of, or absence, of private investment,” said Upasna Bhardwaj, senior economist, at Kotak Mahindra Bank.

For the 2016/17 fiscal year ending in March, New Delhi reported GDP growth of 7.1 percent, slower than an 8.0 percent expansion a year ago.