India’s GDP grew at its fastest in seven quarters in the January-March period, bolstered by strong performance in construction, manufacturing and public services, pointing to a persistent revival trend and bringing cheer to the government ahead of next year’s general election.
The full FY18 growth estimate was revised upward to 6.7 per cent from 6.6 per cent in the second advance estimate released in February. This is in line with the 6.75 per cent growth forecast by the Economic Survey and down from 7.1 per cent in FY17 with the slowdown being attributed to the lingering effect of demonetisation and the rollout of the goods and services tax (GST) in July last year.
Gross domestic product rose a better-than-expected 7.7 per cent in the fourth quarter, retaining India’s ranking as the world’s fastest-growing major economy, outpacing China by nearly a percentage point.
The data, combined with April’s higher annual inflation pace of 4.58 percent, could put pressure on the Reserve Bank of India to raise interest rates next week after keeping them on hold for a fourth straight meeting last month.
Prime Minister Narendra Modi, who is expected to seek a second term in 2019 general elections, has launched a nation-wide goods and services tax and allowed foreign investment in defence and e-commerce businesses to boost economic growth.
However, a botched implementation of the GST nearly scuttled India’s growth prospects in the near term.
Economists said a rise in capital investment growth to near 9 percent in the last quarter of the 2017/18 fiscal year compared with 2.4 percent a year earlier indicated a pick-up in the private investments.
Yet banking credit, a main source for corporate borrowing, remained weak following a surge in bad loans, as banks have been reluctant to extend new loans. The 21 state lenders hold two-thirds of banking assets, and accounted for the bulk of the record $150 billion of soured loans in the banking sector in 2017.
“Corporate sector results and the industrial production readings have been better than expected. Hence, the industrial sector could pull the GDP growth number up,” said Tushar Arora, senior economist with HDFC Bank.
Growth is likely to get a boost from monsoon rains, which hit the southern state of Kerala a few days earlier than normal, potentially brightening the outlook for agricultural output.
(With Inputs from Reuters)
