Office (CSO) of the ministry of statistics and programme implementation (MOSPI) has forecast that India's economy will grow by 5% in 2012-13, the slowest since 2002-03 when the economy grew by 4%.
How have prices pulled down growth?
Whether daily groceries, or the occasional fine dining, or recurrent home loan EMIs, the economic downturn spells bad news for Indian households. It is eating into savings and squeezing family budgets.
There are strong linkages between inflation, industrial slowdown, government deficit, employment and salary raises. Sharply rising food prices hit family budgets hard as the same amount of money now buys fewer goods.
Besides food, clothing, medical care, education, travelling, communication, recreation, eating out and most services have turned dearer over the past 12 months. While food items turned more expensive on weather-induced supply shortages, manufactured output has also turned costlier.
What about high borrowing costs? How does it affect the broader economy?
In the last three years, home loan EMIs (equated monthly instalments) have steadily gone up. Since they cannot be curtailed, family budgets are squeezed by cutting down on regular expenses - even on items such as clothes and consumer durables.
Higher prices and the need to find additional money for EMIs force cuts on purchases of televisions and cars. The resultant fall in demand have hit companies, hurting their revenues, already boxed in by rising input and borrowing costs.
Many experts also say that adverse policy pronouncements by the government have hurt the prospects of the Indian economy. How?
Policy pronouncements such as a retrospective tax on older corporate transactions such as the Vodafone-Hutch deal and uncertainty over general anti-avoidance rule (GAAR) had dented India's image as an investment hotspot, sparking fears among global investors.
As foreign investors, who say this would choke foreign investment into India, pull out from Indian equities, the rupee has slid. A fall in the rupee's value makes imported raw materials and overseas loans costlier, hitting companies further.
How has costly borrowing hurt consumer purchases?
Households putting off spending are warning signals of an economy-wide squeeze and the clearest indications of this downturn are available in a market or a mall.
Automobile sales growth crawled to 4.6% during April to December 2012 versus 12.5% in the year-ago period, supporting the view that high inflation and interest rates are denting discretionary consumer spending.
Latest GDP data has shown that private consumption is estimated to remain flat at 59.7% of GDP (at current prices) against 59.2% last year, implying people are putting off planned purchases due to high interest rates and costly products.
A recent Reserve Bank of India (RBI) survey shows that high interest rates have dented consumer confidence. There has been a decline in the proportion of respondents reporting increase in current and future spending.
From the borrowers' point of view, the proportion of respondents perceiving interest rate as high has increased, according to the RBI consumer confidence survey of households for October-December 2012.
The survey, carried out among 5,259 urban households across Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi, is a metric for assessing consumer sentiments.
Last month, the RBI cut the repo rate - the key lending rate at which it gives out funds to banks - by 0.25 percentage points to 7.75%, a first in 9 months. Data from 47 banks - accounting for about 95% of all loans - shows than "non-food credit", which includes retail loans for houses and cars, grew at a much slower 8.6% in April to December against 10.4% in the same period last year.
What about investment?
Tight monetary conditions and high inflation have hurt investment activity. Gross fixed capital formation, a proxy for investment activity, has slowed down to 29.9% of GDP (at current prices) against 30.6% last year.
Costly borrowings and inputs have dampened investments as firms defer capacity expansion, hurting job prospects. Firms have pruned wage bills, offering lower salary hikes that barely take care of rising prices.
How would the slowdown affect the government's plans?
Sluggish industrial growth has led to deceleration in the economy, resulting in slower GDP growth. Slow growth can hurt government's tax revenues that may force the government to borrow more to fund its activities. This can upset fiscal plans ahead of the budget.
What steps can the government take to revive the economy?
One of the surest ways to revive a sagging economy is to prompt households to spend more. In times of high prices, the best way to do this is to give more money to people via tax breaks.
It's also critical to fast-track roads, ports, airports, and railways projects to create jobs, raise non-farm incomes and catalyse large scale industrialisation.
The 1,483-km long Delhi- Mumbai Industrial Corridor and a few other large-scale projects should be accorded the highest priority as they can potentially spin off into millions of jobs.