Indian economy grows surprise 9.3 percent in Q1
NEW DELHI — India's economy accelerated by a surprise 9.3 percent in the first quarter as industry and services grew strongly but a slowdown loomed, analysts warned Friday.
The quicker pace of growth in the April to June period in South Asia's largest economy exceeded analysts' expectations of around 8.9 percent and outpaced the 9.1 percent expansion in the previous quarter, data showed.
"The GDP figures have come in strong," said Manika Premsingh at Edelweiss Capital, but she warned of slower expansion in coming quarters as a result of a steady tightening of monetary policy to curb inflation.
India's economy grew by 9.4 percent in the financial year to March 2007, buoyed by an increasingly affluent middle class, and is the second-fastest growing after China.
Finance minister P. Chidambaram said he was "confident GDP growth will remain close to nine per cent this year" even though first-quarter growth was "a shade below" the 9.6 percent expansion logged in the year-ago period.
Other data Friday showed inflation slipped just below four percent for the first time in over 15 months for the week ended August 18, down from 4.10 percent the previous week and well under central bank targets.
But economists said the fall in the wholesale price index, India's closest watched inflation measure, was mainly due to a high year-ago base effect when inflation was 5.12 percent.
"For now, it does not seem likely the central bank will loosen rates in a hurry... (as) the economy continues to grow at an above trend pace," said Premsingh.
The latest growth figures reflected a robust performance by manufacturing, which grew by 11.9 percent year-on-year. Services accelerated by 10.6 percent.
Agriculture, which the government is hoping to stimulate to boost overall growth, expanded by 3.8 percent.
"Construction has surprised on the upside and agriculture has turned out a bit stronger than expected," said Soumitra Choudhury, economic advisor at credit rating agency ICRA.
The growth data helped to lift India's benchmark Sensex index by 1.30 percent or 196.86 points to 15,318.60, for its sixth straight day of gains.
"The GDP numbers were strong in absolute terms, it was a good indicator for the market," said Naresh Garg, chief investment officer at Sahara Mutual fund.
The better growth data prompted some economists to boost full-year forecasts.
But the economy would still expand more slowly this year than last, when growth was the fastest in nearly two decades, according to their predictions.
Monetary tightening may already be cooling the economy. Sales of cars, motorbikes and trucks have dropped as interest rates have surged to five-year highs. Consumer durables spending has also fallen.
JP Morgan said it would likely hike its full-year growth forecast to around 8.6 percent from 8.0 percent earlier. India's central bank has forecast 8.5 percent growth.
"Growth in the remainder of the year will moderate slightly owing to the combined impact of monetary tightening and recent rupee appreciation," said JP Morgan economist Rajeev Malik, who forecast a "pronounced" slowdown in consumer spending.
The rupee is trading at around eight-year highs against the dollar after hitting close to decade peaks earlier this year.
Many analysts said India was relatively protected from the US subprime crisis, noting the direct exposure of domestic banks to the credit woes is limited.
But some analysts warned the subprime turmoil could cause a "significant" slowdown if it persists for more than a few months, for instance if it staunches foreign investment flows into India.
India's Prime Minister Manmohan Singh has said the economy needs to grow by at least 10 percent annually to address widespread, crushing poverty.
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