Business

Tuesday December 1, 2009

India’s Q2 growth higher than expected


It adds pressure on the central bank to lift rates as inflation rises

NEW DELHI: India’s economy grew an annual 7.9% in the September quarter, much faster than expected on government stimulus spending and a surge in manufacturing, adding pressure on the central bank to lift interest rates as inflation rises.

The annual growth for India’s fiscal second quarter was far above a median forecast of 6.3% in a Reuters poll as agricultural output performed better than expected, sending the yield on the benchmark 10-year bond up by two basis points as investors bet on higher interest rates.

The growth was the strongest for Asia’s third-largest economy in 18 months.

“This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by the end of the calendar year. The exit from the fiscal stimulus by the government may also be earlier, post the GDP data,” said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

In the June quarter, India’s economy grew 6.1% from a year earlier, and Prior-Wandesforde said by his calculation the September period’s growth was the sharpest on a quarter-on-quarter basis since quarterly data began in 1996.

Manufacturing output expanded 9.2% in the September quarter as consumers stepped up purchases of cars and other goods.

Farm output was up 0.9%, beating expectations for a decline, although economists warned that the impact of the poor monsoon was likely to be seen in the current quarter.

“The December quarter will show agriculture declining, because that’s when the harvest shortfall will get captured,” said Rajeev Malik, economist at Macquarie in Singapore, who stuck with his view that the central bank would deploy liquidity management steps rather than rate hikes in December and January.

“I don’t think they (RBI) are going to be swung by what agriculture has done on a technical basis,” he said.

Last week, India’s finance minister expressed worry about rising food prices – the result of a bad summer monsoon and floods that have crimped farm output. Yesterday, however, a top government adviser said there were no serious inflation concerns for now and said he expected no change in government stimulus policy for the current fiscal year.

“It is difficult to project what will happen in the rest of the year. But this performance does suggest that there may well have to be an upward revision in the GDP (gross domestic product) growth of 6.5% which has been projected so far,” Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission.

India’s roaring September quarter performance still lagged the 8.9% growth recorded by China during the same quarter.

Consumers’ share of spending in India’s economy totalled 53.5% in July–September, roughly in line with 53.4% a year earlier, while the government’s share rose to 10.6% from 8.7% on the back of stimulus spending, yesterday’s data showed. — Reuters


For more on India's GDP from The Statesman, a partner with The Star in the Asia News Network, click here


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