Economic growth beats projections by wide margin

The Indian economy grew an annual 7.9 per cent in the September quarter, beating expectations of a 6.3 per cent growth by a wide margin. The faster-than-expected growth came on the back of the government stimulus spending and a surge in manufacturing adding to the pressure on the central bank to hike interest rates as inflation rises.

The growth was the strongest for the third largest Asian economy in 18 months.

According to analysts the data could be a green light for the Reserve Bank of India to increase rates, which they say would likely happen by the end of the year. The government may also be expected to exit from the fiscal stimulus regime earlier after the GDP data they say.

In the June quarter, the Indian economy registered a growth of 6.1 per cent from a year earlier and analysts say that according to their calculations, the September period growth was the sharpest registered on a quarter-to-quarter basis since 1996 when the quarterly data started.

Manufacturing output increased 9.2 per cent in the quarter as consumers snapped up cars and other goods. Farm output was also up 0.9 per cent belying predictions of a decline, though economists warned that the impact of the poor monsoon was likely to be felt in the current quarter.

Analysts say the December quarter would show agriculture declining as that was when the harvest shortfall would get captured. They add that the central bank would deploy liquidity management steps rather than rate hikes in December and January.