High inflation has weakened demand and prompted the central bank to hike rates 13 times over the last 18 months, crimping growth as a dour global economy squeezes credit and exports.

Policy inertia and corruption scandals have also slowed the flow of crucial investment and helped push the rupee to record lows.

The results were in line with expectations and put pressure on the central bank to arrest — and perhaps reverse — its streak of rate hikes.

"There is clearly a momentum to deceleration setting in, largely driven by a declining investment cycle," said HDFC Bank Chief Economist Abheek Barua. "The manifestations of that will be far more acute next year."

Gross fixed capital formation — a measure of investment — slid 1.8 percent from the prior quarter, to Rs.4.0 trillion ($77.3 billion).

Barua predicts growth will be about 7.3 percent for the year, down from 8.5 percent last fiscal year. Next fiscal year, he anticipates growth will slow even further, to 7.0 percent — a real worry in a country where policy makers have said that growth near 10 percent is required to absorb millions of young job seekers and lift tens of millions out of poverty.

Economists and business leaders say broad reform is required to rekindle investment and growth, no easy task in India's cacophonous coalition democracy. The furor over the government's long-delayed decision to give foreign retailers greater access showcases the difficulty of implementing meaningful policy changes.

"If the government makes some progress toward fiscal consolidation and gets some infrastructure projects — particularly power and roads — off the ground, we could avoid a sharp slowdown next year," Barua said.

Fights over land acquisition and flip-flopping environmental approvals have stalled some big-ticket projects and dampened investor sentiment.

Europe's sovereign debt crisis has also prompted European banks — which provide some $150 billion, or over 50 percent, of foreign currency loans to Indian companies, according to Barua — to pull back, making it harder to fund expansion.

Meanwhile, bruising inflation has hurt domestic spending, helping drive manufacturing growth for the quarter to 2.7 percent, down from 7.8 percent a year earlier.

Agricultural output expanded 3.2 percent for the quarter, down from 5.4 percent a year earlier.

"The cost of capital in India is one of the highest in the world and only some strong positive developments would induce industry to invest," said Chandrajit Banerjee, the director general of the Confederation of Indian Industry, a business lobby. "The corrective actions are very much in the hands of domestic policy makers."