India regained its status as the world's
fastest growing major economy in the October-December quarter, surpassing China
for the first time in a year as government spending, manufacturing and services
all picked up.
Asia's third-largest economy grew 7.2 percent in the December quarter, its
fastest in five quarters, Ministry of Statistics data showed on Wednesday. That
beat China's 6.8 percent and a forecast of 6.9 percent by analysts polled by
In a data set that some economists said had put an early interest rate hike on
the agenda, India also edged up it s 2017/18 GDP growth forecast to 6.6
percent from 6.5 percent.
India's manufacturers and service industries have been struggling to overcome
disruptions from the bumpy launch of a national sales tax in July.
In the December quarter, annual growth in the manufacturing sector however
climbed to 8.1 percent from 6.9 percent in the previous quarter, while
financial and other services grew at 7.2 percent from 5.6 percent.
"Settling down of Goods and Services Tax (GST) reforms will boost growth
in the next fiscal year," said Anita Gandhi, a director at Arihant Capital
Some economists now anticipate the Reserve Bank of India (RBI), which is
trying to balance concern over inflation with support for growth, could raise
interest rates after its next policy meeting on April 5.
"We expect a rate hike from RBI, most likely at the August review,"
said Abhishek Upadhyay, economist, ICICI Securities Prime Dealership, citing
The central bank has kept its key rate unchanged since a 25 basis points cut in
Retail inflation eased marginally to 5.1 percent in January from a 17-month
high of 5.2 percent in December.
Urjit Patel, RBI governor, this month said the economic recovery was at a
nascent stage and called for a cautious approach.
Wednesday's data is likely to be welcomed by Prime Minister Narendra Modi.
Last week, he told industrialists that his government was determined to put the
economy back on a higher growth trajectory, but it is still far from firing on
Modi faces criticism
over mounting bad loans at state banks and a $1.77-billion fraud at state
lender Punjab National Bank, the biggest in the country's banking
Meanwhile, he is trying to accelerate growth through higher state spending,
including 2.1 trillion rupees ($32.4 billion) for the recapitalisation of state
banks, which are beset with mounting bad loans of nearly $148 billion.
He has stepped up spending on infrastructure and welfare projects to boost
growth ahead of national elections in 2019.
This has widened the fiscal deficit for the year ending in March, to 3.5
percent of GDP from the 3.2 percent projected earlier.
Creating jobs for near one million youth entering the market every month has
been a key challenge, and he raised import tax on near 50 items this month to
support domestic manufacturers.
In November, Moody's raised India's investment grade rating one notch, the
agency's first upgrade in nearly 14 years, but cautioned against macroeconomic
India grew at more than 9 percent a year from 2005 through 2008.
Higher oil prices and increased pressure on market borrowings from government
have already increased bond yields and this is likely to hit private investment
and growth further.
Growth in factory activity slowed to a four-month low in February as new orders
eased and weighed on output after manufacturers raised prices at the fastest
pace in a year, a private business survey showed on Wednesday.
Analysts said bad loans in banks and inflationary risks arising from high food
and crude prices pose risks to growth.
"There are concerns of a rising fiscal deficit and the possibility of
interest rates rising further," Gandhi said.