India's Economy Grows at Fastest Pace since Global Financial Crisis
India's economy beats growth forecasts
NEW DELHI -World reports.
India's economic growth surged in the third quarter at a much faster pace than expected, increasing the odds that the central bank will hike interest rates in January to head off a burst of inflation.
Gross domestic product grew 7.9% from a year earlier in the July-September period, accelerating from a 6.1% expansion in the previous quarter and marking the fastest growth since the January-March quarter of 2008, the Central Statistical Organization said Monday.
The reading was higher than even the most bullish forecast in a Dow Jones Newswires poll of 13 analysts, where the median estimate was for a 6.3% rise.
The government didn't release quarter-on-quarter figures, but according to HSBC calculations, GDP grew at a sizzling 13.9% annualized pace from the previous quarter, likely the fastest since the government started releasing GDP data every three months in 1996.
Officials from the Reserve Bank of India and the Planning Commission, the country's top policy think tank, said they were likely to revise upward their economic growth forecasts in response to the figures, suggesting the economy's strong performance caught the authorities off guard.
"This is better news than we sort of expected," the RBI's new Deputy Governor Subir Gokarn told reporters.
The data underscore India's smart rebound from the deep global downturn last year, and provides more evidence that Asia is leading the recovery. Growth was led by manufacturing, mining and social spending, which rose on the back of government stimulus measures and previously unpaid salary increments to civil servants.
Activity at India's factories and mines has been humming as sharp interest rate cuts and fiscal stimulus measures lift demand for automobiles, steel and cement. A protracted slump in exports has also abated while overseas investors have poured billions into the country's stock market.
The agriculture sector, which employs nearly 60% of India's workforce, also defied most analyst forecasts for a decline by posting a modest increase.
"The GDP numbers indicate response to initiatives taken by government in various policy measures including injecting stimulus, which we did in three doses over the last 11 months," said Finance Minister Pranab Mukherjee.
Mukherjee said he thinks growth will likely to top the ministry's current 7% forecast for the current fiscal year ending March 31. The RBI currently expects the economy to grow by around 6% this financial year while the Planning Commission tips a 6.5% expansion.
The data sent Indian stocks prices higher, helping recoup some of last week's declines when global markets swooned after Dubai's government said it was seeking a freeze on Dubai World's debt repayments. Government bonds fell.
The benchmark 30-stock Sensex ended 1.8% higher at 16,926.22 while the 6.90% 2019-dated bond fell to INR97.54 from its previous close of INR97.99. Yield on the note climbed seven basis points to 7.26%.
Montek Singh Ahluwalia, the Planning Commission's deputy chairman, played down the impact of the Dubai crisis on India's economy. Dubai's construction boom has relied heavily on Indian workers, who send money back home to relatives.
"What I know is that the direct exposure of our banks to Dubai is very, very low and you cannot necessarily conclude that there will be negative impact on remittances," he said.
The strong GDP growth could mean an earlier a rate hike by the RBI, which many economists had been expecting to wait until March or so before withdrawing some of its monetary stimulus. Inflation is set to accelerate in the coming months as a favorable statistical base effect that masked a steady rise in prices since the turn of the financial year in April is now wearing thin.
"Today's data strengthens the case for the Reserve Bank of India to exit from its very easy policy settings," said Sonal Varma, an economist with Nomura Financial Advisory and Securities.
"We expect the policy rate hiking cycle to begin in January with a cash reserve ratio hike likely this December," she said.