Key sectors of the Indian economy shed half a million jobs in the final three months of last year as the global slowdown took its toll on one of the world's fastest growing big economies.

A survey of employment across seven sectors by the Ministry of Labour showed job losses in mining, textiles, carmaking, transport, metals, gems and jewellery and back office process outsourcing. The gems and jewellery sector, usually a strong export performer, was the hardest hit with a total fall of 9 per cent.

Employment of contract workers in the motor industry alone fell 12.5 per cent during the period as demand slowed and the liquidity crisis shortcircuited demand in the global economy. But the report showed that the gems and jewellery sector, a usually strong export performer, was the hardest hit with a total fall of 9 per cent.

Many additional jobs among contract and temporary staff, particularly in textiles, are likely to have gone unrecorded. Workers in many industries are being encouraged to take pay cuts and work longer hours to save their jobs.

The widespread job losses come ahead of India's national budget on February 16. Policymakers are already suggesting that India needs additional fiscal stimulus in addition to measures already taken to buoy its economy.

However, worries are mounting about the widening budget deficit. Some government economists are predicting the deficit may grow to 7.5 per cent of gross domestic product from a target of 2.5 per cent as Delhi seeks to protect a high growth rate of about 7 per cent with public spending.

The job losses are also particularly sensitive because the Congress party-led government faces a general election in April. The government aims to create 58m jobs over the next five years, and Manmohan Singh, prime minister, had appealed to industrialists to hold back from job cuts.

Some economists are cautioning against too much pessimism about the prospects for the Indian economy. Robert Prior-Wandesforde, HSBC's senior Asia economist, said recent export figures showed it was proving resilient. He forecast it would be able to sustain 7 per cent growth in 2008/09, falling to 6.2 per cent next year.

Copyright: The Financial Times Limited 2009