NEW DELHI, 1 October 2005 — India’s economy expanded by 8.1 percent in the three months to June, beating market forecasts, thanks to strong manufacturing growth and booming consumer demand, official data yesterday showed.
The fiscal first-quarter figure exceeded many analysts’ forecasts of around seven percent growth and prompted a number to say they would hike their growth estimates for the full year ending March 2006.
The data shows the “maturity of the Indian economy and its potential to gather pace,” Onkar S. Kanwar, president of the Federation of Indian Chambers of Commerce and Industry said.
“Growth for the entire year should easily be in excess of eight percent,” he said.
Borrowing rates riding near three-decade lows and rising middle class affluence has spurred spending in the country of over one billion people and made India the fastest-growing major economy after China.
The strong performance came despite a dip in farm sector output which accounts for nearly a quarter of India’s gross domestic product and employs 70 percent of the workforce in the country of more than one billion people. Analysts said the outlook for overall growth was strong as agricultural output would pick up in coming months due to good monsoon rains, though parts of the country’s breadbasket northern region got lower rainfall.
“The monsoon rains were quite reasonable, said Anjan Roy, economic adviser at the Federation of Indian Chambers of Commerce and Industry. “The manufacturing sector (which accounts for a quarter of GDP) is doing exceptionally well. It shows we’re well set for at least eight percent growth.” Manufacturing growth surged by 11.3 percent in the first quarter.
The reformist Congress-led government of Prime Minister Manmohan Singh has forecast growth of seven percent for this financial year after the economy expanded by 6.9 percent the previous year.
“First quarter growth was much better than I expected. It shows good prospects for the economy,” said Saumitra Chaudhari, chief economist at ratings agency ICRA.
Chaudhuri also said he would look at his growth estimate.
“I was expecting around seven percent growth for the year, but those figures will now have to be re-examined,” he said.
However, John Keynes, head of research for Asia at IDEAglobal in Singapore, said Indian growth was likely to be closer to seven percent for the year as he felt the current rate of manufacturing expansion was unsustainable.
Industries have boosted investment to ramp up production capacity as even costly items such as cars have been snapped up by consumers.
Economists said there was no fear of high global oil prices derailing growth as consumer confidence has remained undented through two petrol price rises this year. Inflation was also seen remaining relatively benign. The inflation rate for the week ended September 17 edged up to 3.75 percent from 3.53 percent a week earlier, data yesterday showed.
The Mumbai stock market, which has been on a record-setting roll propelled by foreign funds seeking a slice of the fast-growing economy, recovered smartly from morning lows after release of the GDP data.