Gross domestic product (GDP) grew 5.7 per cent in the latest quarter, its slowest pace since the January-March quarter 2014, according to data released on Thursday.
That compared with a forecast of 6.6 per cent growth by economists in a Reuters' poll, and was slower than 6.1 per cent growth posted in January-March.
PM Modi's decision last November to scrap high-value old banknotes, in a bid to flush out the money Indians hide from the taxman, wiped out about 86 per cent of currency in circulation virtually overnight.
While his drive to unearth unaccounted wealth did not deliver the desired result, it pounded consumer demand in an economy where most people are paid in, and buy what they need with, cash.
Confusion ahead of the launch of a new goods and services tax (GST) also seems to have dampened economic activity.
"The numbers seem to suggest that the slowdown from last the quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST," said Abheek Barua, chief economist with HDFC in New Delhi.
"We have to revise our GDP outlook numbers for the full year."
The slowdown was led by the manufacturing sector, which expanded at 1.2 per cent from a year earlier compared with a 10.7 per cent growth last year.
The financial, insurance, real estate and professional services sectors also slowed to 6.4 per cent in the June quarter from 9.4 per cent a year ago.
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