Economists have significantly revised their full-year projections for India’s economic growth after recent data revealed robust growth in the last quarter, driven by a notable manufacturing boom.
Barclays Plc and Citigroup Inc now anticipate India’s economy to expand by 6.7% in the fiscal year ending in March, up from their earlier forecasts of 6.3% and 6.2%, respectively. This optimistic outlook follows a better-than-expected report indicating a 7.6% growth in Gross Domestic Product (GDP) for the three months to September compared to the previous year. This figure surpassed all estimates in a Bloomberg survey of economists and exceeded the Reserve Bank of India’s projection of 6.5%.
India maintains its status as the fastest-growing major economy globally, showcasing resilience amidst a global economic slowdown and six interest rate hikes by the Reserve Bank of India since the previous year. This positive economic performance also serves as a boost for Prime Minister Narendra Modi, who faces upcoming elections.
The last quarter’s growth surge was attributed to increased manufacturing, construction activities, and heightened government investment ahead of elections. Prime Minister Modi’s administration has committed substantial funds to enhance the nation’s infrastructure and provide subsidies to encourage firms to establish production facilities in India.
Despite the overall economic growth, challenges persist in specific sectors. The services sector, constituting over half of the nation’s GDP, experienced a slowdown last quarter due to moderated global demand for financial services. Additionally, the agriculture sector weakened due to below-normal rains, impacting the summer crop harvest.
Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd., commented, “The sharp upside surprise to the GDP figures is a welcome sign, especially as it comes in the backdrop of a broad-based pickup across most non-agricultural sectors.” The robust growth, however, poses a dilemma for the Reserve Bank of India, which is striving to maintain inflation at its 4% target. The bank is expected to keep interest rates unchanged on December 8, considering the GDP figures indicate no immediate need for rate cuts.
