INDIA'S slowest growth in a decade could be worse than anticipated, as preliminary data released yesterday showed the economy set to have grown 5 percent in fiscal year ending next month, underscoring the urgent need for reforms to boost growth.

The Reserve Bank of India's forecast for 2012/13 had been 5.5 percent growth, while Finance Minister P. Chidambaram had projected growth of 5.7 percent, down from 6.2 percent in 2011/12, but both appear to have been over-optimistic.

The preliminary data dimmed hopes for a mild recovery in economic activity in the second half of the financial year, which ends in March, with the government now projecting economic growth of 4.6 percent between October 2012 and March 2013, compared with 5.4 percent in the first half of the fiscal year.

"It is disappointing," C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said of the figures. "My own estimate is when the full-year data becomes available, it can be revised upward."

He did not give reasons for his optimism.

The government's estimate for the fiscal year 2012/13 pegged farm output growth at 1.8 percent, while the manufacturing sector may show expansion of 1.9 percent. The services sector, which makes up over half of India's GDP, is forecast to slow to 6.6 percent from 8.2 percent a year ago.

"These all look a little low to us, but it is the service sector estimate, where high frequency information is most lacking, which is the biggest surprise," Credit Suisse analyst Robert Prior-Wandesforde said.

The figures will pile pressure on Indian Prime Minister Manmohan Singh's Congress-led government to unveil a growth-oriented budget on February 28 for the next fiscal year, beginning in April.

But faced with an arduous task of trimming a swollen fiscal deficit that has put India's investment-grade credit rating in peril, Singh can ill-afford to boost government spending to prop up growth ahead of a national election due by May 2014.

Chidambaram has already ordered spending cuts in welfare, defense and road projects for this financial year.

According to the GDP estimate, growth in government expenditure is on track to ease to about 4 percent in 2012/13 from 8.6 percent a year ago.

Economic growth likely eased further to around 4.8 percent in the quarter ending in December, mainly as a result of deep cuts in government spending, a senior official at the statistics ministry said yesterday. The GDP data for the December quarter is due on February 28.

Critics warn that at a time of low growth, lower spending risks deepening the slowdown without helping the deficit-to-GDP ratio.

But others argue the government has little option but to tighten its belt. A drop in investment, hurting growth, is blamed partly on high public spending that is funded through heavy market borrowing and crowding out the private sector.

Indian business leaders and foreign investors are pushing Singh to fast-track stalled tax reforms.