Mumbai // India’s economy gathered pace in the quarter to September, with manufacturing helping to drive growth and propel it ahead of that of China.
The country’s GDP grew by 7.4 per cent in the July to September quarter, compared with a year earlier.
That annual growth rate is also better than the 7 per cent annual pace recorded during the previous quarter, data released by the Indian government showed.
“Continued growth momentum of the financial sector and robust manufacturing growth is encouraging,” says Devendra Kumar Pant, the chief economist of India Ratings & Research, a Fitch Group company.
“While agriculture continued to surprise positively, construction activities have nearly collapsed. Despite a decline in inflation and monetary easing, decline in second quarter [of the fiscal year, which runs from April to March] consumption growth from the first quarter is puzzling.”
India’s prime minister Narendra Modi has come under pressure to deliver reforms and boost India’s economy.
The recent defeat of his Bharatiya Janata Party in regional elections in Bihar was viewed by some as a sign that confidence in Mr Modi’s pro-business reform agenda is waning. Following the loss, India’s government announced several measures to attract foreign direct investment to the country.
Weak monsoon rains this year have added to concerns because this affects the agricultural sector and, in turn, consumer spending.
Investors are hoping that the government can push through a long-awaited goods and services tax (GST) to allow it to be rolled out from April next year. Economists have predicted that the nationwide, single- rate tax could add significantly to India’s economy. The consensus is that India needs to achieve levels of economic growth of 8 per cent or higher to create enough jobs and support its population of more than 1.2 billion.
China’s economy grew at an annual rate of 6.9 per cent in the quarter between July and September.
The IMF has predicted that India will overtake China to become the world’s fastest growing major economy this year.
The methodology of calculating India’s GDP was changed this year, resulting in significantly higher figures, raising some questions over how the data is calculated.
The Reserve Bank of India’s (RBI) monetary policy meeting is scheduled for today, with rates widely expected to be kept on hold.
“The RBI is likely to hold the rates because they have already cut the rate by 125 basis points during the year,” said Vinod Nair, the head of research at Geojit BNP Paribas Financial Services. “Now the focus should be on the transmission of 125 basis points, since banks’ lending rate has reduced only by an average of 30 basis points in the same time. Market participants are hopeful of GST bill passage [but there are] concerns over Fed meeting followed by ECB policy.”
Anand James, the head of the technical research desk at Geojit BNP Paribas, said: “Though the central bank is unlikely to move rates, the governor’s comments would be closely followed for signal towards the rate trajectory, especially in the backdrop of a US rate hike expectations having gone up significantly.”
The benchmark Bombay Stock Exchange Sensex was up 17.47 points, or 0.07 per cent, to 26,145.67 at its close. Indian stock markets were closed when the data was released.
Mr Pant said he expected the economy to show “gradual improvement” resulting in estimated growth of 7.5 per cent for the current financial year.
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