India’s economy outpaced analysts’ predictions, registering robust growth of 7.6 per cent in the three months to September compared to a year ago, according to government data released on Thursday.
The figure surpassed all estimates in a Bloomberg survey of economists and exceeded the Reserve Bank of India’s projection of 6.5 per cent. Despite challenges like surging inflation and multiple interest rate hikes by the RBI, India retains its position as the fastest-growing major economy globally.
The growth is attributed to factors such as strong manufacturing performance, increased consumption, and the Indian government’s heightened spending ahead of upcoming elections.
Bloomberg cited Madhavi Arora, an economist with Emkay Financial Services, who highlighted the factors driving India’s buoyant growth, emphasising robust corporate profits, a strong fiscal impulse, and front-loaded government spending in a pre-election year.
Prime Minister Narendra Modi’s administration is actively investing in infrastructure and offering subsidies to attract companies to set up production in India. These initiatives, coupled with healthy consumption patterns, contribute to gains in private sector investments. Gross fixed capital formation, a proxy for investment, surged by 11.04 per cent compared to 7.95 per cent in the previous quarter.
While the services sector, constituting over half of India’s GDP, expanded at a slower pace due to moderating global demand for financial services, the manufacturing sector’s significant growth played a pivotal role in overall economic expansion. Agriculture, however, experienced a slowdown attributed to below-normal rains, resulting in a weaker summer crop harvest.
India faced its weakest monsoon rains in five years, leading to government interventions such as extending curbs on the export of farm commodities like sugar, rice, and wheat. The GDP figures, representing a sharp upside surprise, received positive reactions from economists, with Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd., noting the broader economic pickup across most non-agricultural sectors.
As India experiences this robust economic growth, the challenge remains for the Reserve Bank of India (RBI), which aims to bring down inflation to its 4 per cent target on a durable basis. The strong demand poses a dilemma for the central bank, which has maintained interest rates unchanged for four policy meetings.
(With inputs from Bloomberg)