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 per cent in the December quarter, its fastest in five quarters, Ministry of Statistics data showed on Wednesday. That beat China's 6.8 per cent and a forecast of 6.9 per cent by analysts polled by Reuters.
The Indian economy grew at five-quarter high of 7.2% in the October-December period reflecting overall recovery due to good show by agriculture, manufacturing, construction and certain services.
Bibek Debroy,chairman of the Economic Advisory Council to the Prime Minister (EAC-PM),
Enthused by the December quarter economic growth of 7.2 per cent, chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), Bibek Debroy said today that India is on the right path to become one of the fastest expanding major economies in the world surpassing China.
The growth, he said, will pick up more in the upcoming quarter driven by the government's commitment to implement structural reforms, and aided by higher growth in the industrial and services sectors as well as spending by the Centre.
In a data set that some economists said had put an early interest rate hike on the agenda, India also edged up its 2017-18 GDP growth forecast to 6.6 per cent from 6.5 per cent.
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 per cent from 6.9 per cent in the previous quarter, while financial and other services grew at 7.2 per cent from 5.6 per cent.
The CSO said that the real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in 2017-18 is likely to be Rs 130.04 lakh crore, as against the first revised estimate for 2016-17 of Rs 121.96 lakh crore, released on January 31.
"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 Markets.
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 inflationary pressures.
The central bank has kept its key rate unchanged since a 25 basis points cut in August
Retail inflation eased marginally to 5.1 per cent in January from a 17-month high of 5.2 per cent in December.
Urjit Patel, RBI governor, this month said the economic recovery was at a nascent stage and called for a cautious approach.
BAD LOANS AND JOB CREATION
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 all cylinders.
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 per cent of GDP from the 3.2 per cent 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 risks.
India grew at more than 9 per cent a year from 2005 through 2008.