Economy probably grew 5.5 percent in July-Sept qtr - Chidambaram

PUNE, India (Reuters) - India's economic growth probably languished near a three-year low of 5.5 percent in the quarter that ended in September, Finance Minister P. Chidambaram said on Saturday, a pace that will increase the pressure on the government to enact tough reforms.

Gross domestic product data for the July-September quarter is due on November 30.

A sub-6 percent growth rate, for the third quarter in a row, will add pressure on the government to boost economic activity by fast-tracking stalled tax and regulatory reforms. It will also bolster calls for an interest rate cut by the country's central bank, which has so far ruled out any before January, citing high inflation.

"When growth declines to 5.5 percent as it has in the first quarter (April-June) of this financial year and when the growth is likely to be around 5.5 percent in the second quarter of this financial year, it goes without saying we are facing a difficult situation," Chidambaram told a bankers' conference.

"We have to overcome this difficult situation through innovation, finding new ways of increasing production of good and services and finding new ways to help the poor of the country."

India, Asia's third-largest economy, once boasted near double-digit growth but has been hard hit by the global economic downturn and a series of policy missteps.

Chidambaram told Reuters earlier this month that growth for the current financial year that ends in March could be as low as 5.5 percent, which would be the slowest rate of expansion since 2002/03.

With the economic slowdown beginning to bite India's middle class, the government faces the challenges of reviving the economy before it seeks a re-election in 2014. A weak economy has also hit tax revenues, compounding the nation's fiscal woes and raising the spectre of a credit rating downgrade.

Global rating agencies have threatened to downgrade India's sovereign credit rating to junk if it fails to put its fiscal house in order.

Chidambaram said the government will launch direct cash payments for welfare programmes and subsidies on January 1 in 16 states with an aim to expand the programme across the country by the end of 2013.

Billions of dollars are frequently siphoned off from welfare schemes.

(Reporting by Swati Pandey; Writing by Rajesh Kumar Singh; Editing by Sanjeev Miglani)