India's economic growth has slowed in the past three consecutive quarters
India's economic growth has slowed in the past three consecutive quarters AFP / XAVIER GALIANA

India said Friday it would pump in nearly 10 billion dollars into government banks to ease a liquidity crunch in Asia's third-largest economy, as it goes through its worst slowdown in five years.

"We are releasing 70,000 crore ($9.7 billion) upfront into public sector banks.... This will benefit all corporate and retail borrowers," Finance Minister Nirmala Sitharaman said at a news conference in New Delhi.

She also said she would roll back an extra fee that had been introduced in the July budget on profits from equity sales that had spooked foreign investors and sent Indian shares sharply lower.

Sitharaman announced a slew of other steps to revive the misfiring economy, including an agreement by lenders to pass onto borrowers interest rate cuts by the central bank.

"People were saying that the benefit of rate reductions don't reach them at all, or reaches in trickle. There was an across the board grievance," Sitharaman said.

"This will result in reduced EMI (equated monthly installments) for housing, vehicle, retail and other loans."

Earlier this month, India's central bank cut interest rates for the fourth time this year to a nine-year low in an attempt to boost growth, but credit has remained tight for firms and consumers.

India's economic growth has slowed in the past three consecutive quarters, losing its status as the world's fastest-growing major economy to China, with unemployment at its highest since the 1970s.

The automotive sector is particularly stricken, with car sales plunging 31 percent in July, the ninth consecutive monthly drop, prompting manufacturers to halt production at some plants.

In an effort to boost car sales Sitharaman said the ban on purchasing new vehicles by government departments would be lifted.

Industry figures had been calling on newly re-elected Prime Minister Narendra Modi's government to provide more of a fiscal boost as signs multiply that numerous sectors are suffering a painful slowdown.

On Thursday shares fell sharply after the government's chief economic advisor K. Subramanian indicated he did not favour government sops in a market-driven economy.

Gross domestic product (GDP) for the world's sixth-biggest economy grew 5.8 percent in the final quarter of 2018, down from 6.6 percent in the previous quarter.

Economists at Nomura predicted this week a further slowing of momentum, forecasting growth of 5.7 percent in the first three months of 2019. GDP data are due next Friday.