India’s Economic Growth Accelerates

By: Editor In Chief
    
Sun 27 March,2016

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Gross domestic product grows 7.4% last quarter




Filed Under: Economy & Development

India’s economic expansion accelerated last quarter as robust growth in manufacturing helped it pull further ahead of China as the world’s fastest-growing big economy.

Gross domestic product in the three months ended Sept. 30 grew 7.4% from a year earlier, according to government data released on Monday. That was a step up from the 7.0% expansion in the previous quarter and in line with the 7.4% median forecast of economists

As most emerging markets have struggled this year, India has stood out. Asia’s third-largest economy has been able to decouple from the deceleration elsewhere thanks in part to a jump in optimism following the election last year of Prime Minister Narendra Modi, who pledged to make it easier to do business in India.

The country’s growth also got a boost this year when government statisticians changed the way they calculated GDP.

“We believe that the Indian economy will remain a growth outperformer in Asia in 2016,” said Chua Han Teng, Asia analyst at BMI Research. “Macroeconomic prospects are brighter under Prime Minister Narendra Modi’s administration due to an improvement in the business environment.”

The country’s manufacturing output climbed 9.3% last quarter, up from 7.2% in the quarter ended in June, the data showed. Trading and hotel services growth slowed to 10.6% from 12.8% while financing and insurance services growth accelerated to 9.7% from 8.9%.

Farm production remained sluggish at 2.2% growth, slightly higher than 1.9% the previous quarter.

[caption id="attachment_2438" align="aligncenter" width="1050"]Labourers work at the construction site of a commercial complex in New Delhi November 20, 2013. India is likely to achieve an economic growth of between 5-5.5 percent in this fiscal year, the finance minister said last week, despite wide expectations of growth slipping below 5 percent by private economists. REUTERS/Anindito Mukherjee (INDIA - Tags: BUSINESS CONSTRUCTION SOCIETY TPX IMAGES OF THE DAY) - RTX15LB1 Labourers work at the construction site of a commercial complex in New Delhi November 20, 2013. India is likely to achieve an economic growth of between 5-5.5 percent in this fiscal year, the finance minister said last week, despite wide expectations of growth slipping below 5 percent by private economists. REUTERS/Anindito Mukherjee (INDIA - Tags: BUSINESS CONSTRUCTION SOCIETY TPX IMAGES OF THE DAY) - RTX15LB1[/caption]

With China’s growth sputtering and other large developing economies such as Brazil and Russia in even direr straits, India has sought to position itself as the emerging market with the most potential.

In recent quarters it has seem to solidly step out of China’s shadow and surpass it in terms of growth. China’s economy expanded 6.9% last quarter.

Still, some wonder whether India is truly an outlier.

In January, government statisticians announced a revised methodology for estimating GDP, leading to a sharp increase in the country’s growth readings. These have been hard to square with other data such as weak corporate earnings and a nearly yearlong decline in exports, which suggest economic activity remains weak.

Whether India can remain the fastest-growing large economy will depend on its policy makers’ ability to improve the business environment, economists say.

Despite a large majority in Parliament’s lower house, Mr. Modi’s Bharatiya Janata Party and its allies have struggled to enact their legislative agenda. Their lack of a majority in the upper house as well as their recent drubbing in state elections in Bihar have hobbled the BJP’s ability to moved decisively.

Politics has delayed one of the government’s most sweeping overhauls— a nationwide goods and services tax to replace the current confusing and expensive patchwork of federal and state levies.

The government also has had to retreat from plans to change land rules aimed at making it easier to acquire land for industrial and infrastructure projects.

The government’s policy agenda “will likely be constrained in its scope,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight. “Significant reforms can still be pursued through future budget measures and efforts to ramp up public and private infrastructure investment in key sectors such as power, railways and urban infrastructure development.”

The Modi administration, however, has managed to make some changes to put the economy on better footing. It has eased foreign-investment regulations, kept a lid on food and fuel subsidies and come to the aid of debt-laden power companies.

The government has been ordering up new roads at a furious pace. It hopes to increase the total length of the highway network by 50% before 2020.

Cooling inflation has allowed the Reserve Bank of India to support growth by lowering interest rates by 1.25 percentage points this year.

Looser monetary policy might not have its intended effect, however, as long as India’s lenders have been reluctant to pass the lower interest rates on to borrowers as they struggle with bad loans.

“That, to me, is much more important than the GST [goods and services tax] not being passed or the government not winning the Bihar state election,” said Christopher Wood, chief equity strategist at CLSA. The Hong Kong-based brokerage estimates 12% to 16% of assets in India’s banking system are stressed.

In the near future a much-anticipated increase in interest rates in the U.S. could trigger a pullout by foreign funds as the appeal of assets in emerging economies diminishes.

India’s solid growth as well as optimism that it is headed to even better times should mean it is better-placed than other economies to weather the coming storm. Economists predict India’s GDP expansion will be around 7.5% in the fiscal year ending next March.

“The improving macro environment and PM Modi’s tremendous success in branding India as a dynamic, high growth economy,” should shelter India, said Mr. Biswas of IHS.




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