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Indian economy grew faster than expected on govt spending

Published : Sunday, 3 December, 2023 at 12:00 AM  Count : 150

Dec 2: India's economy grew at a much faster pace than expected in the July-September quarter, helped by government spending and manufacturing, raising expectations that Asia's third-largest economy will outperform its own estimates for the full year.

The Indian economy expanded 7.6% in the September quarter, faster than the 6.8% forecast in a Reuters poll of economists and the Reserve Bank of India's estimate of 6.5%.

The South Asian country continues to be one of the fastest growing major economies, amid western economies being squeezed by high interest rates and energy prices, and a slowdown in China.

The pace of growth was slightly slower than the 7.8% expansion India's economy saw in the previous quarter, helped by the comparison with a lower base the previous year.

The manufacturing sector, which for the past decade has accounted for just 17% of the economy, expanded 13.9% year-on-year in the September quarter, compared with a revised 4.7% in the previous three months.

"The buoyant growth is being underpinned by cyclical factors like robust corporate profits, a strong fiscal impulse ... and a boisterous financial sector," said Madhavi Arora, economist at Emkay Global.

Government spending rose 12.4% year-on-year in the July-September quarter compared to 0.7% contraction in the previous quarter.

Growth in capital formation, an indicator of investment, picked up pace to 11% year-on-year from 8% in the previous three months.

However, private consumption growth surprisingly slowed to 3.1% year-on-year from 6%.

"The data doesn't look that good on the consumption side... This is largely due to a weakness in rural demand and it is being reinforced by the low growth in the agricultural sector," said Suman Chowdhury at Acuite Ratings & Research.

Some economists and policy makers expect India to beat the government's growth projection of 6.5% for the fiscal year, even though the next two quarters could see some moderation due to tight monetary policy conditions beginning to impact demand.

"With a strong first half, full-year growth rates might be subject to an upward revision of 40-50 basis points compared to our present estimate," Radhika Rao, economist at DBS Bank said.

India Chief Economic Adviser V Anantha Nageswaran said strong tax collection suggests the economy might be doing better than what is being currently measured but he stuck to the government's 6.5% growth projection.

"We might be understating India's growth rather than overstating it," he said.

With the latest print, in the first half of the fiscal year India's growth averaged 7.7% between April-September.    �Reuters

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