India's economy decelerated to its slowest growth rate in three and a half years in the first quarter of this fiscal year, as higher interest rates forced companies to begin easing back on investment.

Government data showed gross domestic product growth dipped to 7.9 per cent year-on-year in the three months to the end of June, compared with 8.8 per cent a quarter earlier, jeopardising its ranking as the world's second fastest growing large economy after China.