India’s economy grows 8.6 per cent

India’s economy grows 8.6 per cent
By James Lamont in New Delhi
Copyright The Financial Times Limited 2010
Published: May 31 2010 08:00 | Last updated: May 31 2010 11:34
http://www.ft.com/cms/s/0/aa0dd416-6c7e-11df-91c8-00144feab49a.html


The Indian economy grew 8.6 per cent in the quarter ending March this year compared with the same period last year, returning one the world’s fastest growing emerging markets close to where it was before the global financial crisis struck two years ago.

The strong performance, buoyed by government spending and a recovery in manufacturing, will add pressure on the Reserve Bank of India to raise interest rates to curb high inflation in the coming weeks.

The economy grew 7.4 per cent in the year ending March, much in line with finance ministry forecasts.

Brian Jackson, senior strategist at the Royal Bank of Canada, said the data “basically confirms the strong monthly industrial production data we already had, but it should reassure the RBI that they made the right decision to start hiking rates a few months ago.”

“The near-term outlook for growth also looks solid, suggesting that the RBI's focus will remain on dealing with inflation, which is still uncomfortably high.”

Last week, Manmohan Singh, India’s prime minister, said it was his ambition to take India’s now largely service driven economy to 10 per cent economic growth in the “medium term” to put India’s expansion on a par with its neighbour China.

Mr Singh also tried to tame fears of rising prices by saying that his government would help pull wholesale price inflation back to 5-6 per cent by December from near double digits.

The Congress party-led government has faced fierce criticism from the Hindu nationalist opposition Bharatiya Janata party for failing to cool rising prices that it argues have brought more pain than the benefit of high rates of economic growth.

Farm output, in a region heavily dependent on seasonal rains, remained a concern. In the quarter ending March this year, farm production grew by 0.7 per cent. Weakness in agriculture had checked the speed of India's economic recovery after growth of 9 per cent a year before the global financial crisis. But forecasts of normal monsoon rains this summer bring hope of a stronger contribution from the farm sector.

Some economists have warned that complacency in an economy whose fast-paced growth is largely supported by domestic consumption and public spending is one of India's biggest perils. They have called for the speedier adoption of measures to address the inadequacies of education, health and infrastructure.

India’s policymakers have shrugged off fears of a fallout from the European sovereign debt crisis on demand for Indian exports in spite of falls in the rupee and the local stockmarkets.

Montek Singh Ahluwalia, the deputy chairman of the powerful planning commission, however, said India needs a recovery in the global economy to sustain its high levels of economic growth. He described India’s recovery from the global economic downturn as “excellent”.

The finance ministry has predicted economic growth would rise to as much as 8.75 per cent in the fiscal year that began in April.