India's economy will grow at its slowest pace in two years this fiscal year,

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as tight monetary policy and a logjam in government policy making stifles investment, a Reuters poll showed.

Growth estimates for Asia's third largest economy in the current fiscal have been cut four times in a row and it is now expected to expand at an annual rate of 7 per cent in the year ending March, according to the poll of more than 20 economists.

Just three months ago, economists had predicted gross domestic product would grow by 7.6 per cent in the same period.

"Policy is the main reason for the deceleration in growth," said Sonal Verma, economist at Nomura, adding that both central bank interest rate hikes and the paralysis in government decision-making has harmed investment.

For the quarter ended September last year, the economy grew at 6.9 per cent, its weakest pace in more than two years.

The Reserve Bank of India's (RBI) aggressive policy tightening since March 2010, to fight stubbornly high inflation, has steadily reduced investment activity and is now threatening to squeeze growth to levels last seen during the financial crisis in 2008-2009.

The government is also saddled with a cartload of legislation it is not able to pass, owing to opposition from rival political parties and indifference from its own coalition partners.

Prominent among them is a bill to increase the permissible limit of foreign direct investment in the retail sector.

Foreign fund inflows, a major driver of Indian stocks, dried up in 2011 with net outflows in excess of $450 million, from record inflows of more than $29 billion in 2010.

As a result, the benchmark stock index fell by almost 25 per cent in 2011 making it among the world's worst performers. In the same period, the Indian rupee lost about 19 per cent of its value against the US dollar owing to the capital flight from the economy.

While the rupee is expected to gain only slightly this year, the benchmark index will recover most of its losses according to strategists polled by Reuters in December.

"The key is really to kick start the investment cycle. Government decision making has to improve for the economy to register growth above current levels," added Verma.

While inflation in India, as measured by the wholesale price index, slowed to 7.47 per cent in December, economists have forecast prices to rise by an average 8.7 per cent this fiscal, before slowing to 6.5 per cent in the year ending March 2013.

That is slightly lower than the respective 2012 and 2013 forecasts for 8.8 per cent and 6.9 per cent in the October survey. BANGALORE: India's economy will grow at its slowest pace in two years this fiscal year, as tight monetary policy and a logjam in government policy making stifles investment, a Reuters poll showed.

Growth estimates for Asia's third largest economy in the current fiscal have been cut four times in a row and it is now expected to expand at an annual rate of 7 per cent in the year ending March, according to the poll of more than 20 economists.

Just three months ago, economists had predicted gross domestic product would grow by 7.6 per cent in the same period.

"Policy is the main reason for the deceleration in growth," said Sonal Verma, economist at Nomura, adding that both central bank interest rate hikes and the paralysis in government decision-making has harmed investment.

For the quarter ended September last year, the economy grew at 6.9 per cent, its weakest pace in more than two years.

The Reserve Bank of India's (RBI) aggressive policy tightening since March 2010, to fight stubbornly high inflation, has steadily reduced investment activity and is now threatening to squeeze growth to levels last seen during the financial crisis in 2008-2009.

The government is also saddled with a cartload of legislation it is not able to pass, owing to opposition from rival political parties and indifference from its own coalition partners.

Prominent among them is a bill to increase the permissible limit of foreign direct investment in the retail sector.

Foreign fund inflows, a major driver of Indian stocks, dried up in 2011 with net outflows in excess of $450 million, from record inflows of more than $29 billion in 2010.

As a result, the benchmark stock index fell by almost 25 per cent in 2011 making it among the world's worst performers. In the same period, the Indian rupee lost about 19 per cent of its value against the US dollar owing to the capital flight from the economy.

While the rupee is expected to gain only slightly this year, the benchmark index will recover most of its losses according to strategists polled by Reuters in December.

"The key is really to kick start the investment cycle. Government decision making has to improve for the economy to register growth above current levels," added Verma.

While inflation in India, as measured by the wholesale price index, slowed to 7.47 per cent in December, economists have forecast prices to rise by an average 8.7 per cent this fiscal, before slowing to 6.5 per cent in the year ending March 2013.

That is slightly lower than the respective 2012 and 2013 forecasts for 8.8 per cent and 6.9 per cent in the October survey.