NEW DELHI: The Indian economy grew 7.7 per cent year-on-year in January-March, its quickest pace in nearly two years driven by higher growth in manufacturing, the farm sector and construction.

The figure surpassed China’s growth rate of 6.8pc in the January-March quarter, confirming India as the fastest growing major economy.

For the fiscal year that ended March 31, the Ministry of Statistics reported growth of 6.7pc, down from 7.1pc for a year earlier. However, economists expect growth to be robust in the current financial year.

“Investment activity has picked up,” Economic Affairs Secretary Subhash Chandra Garg told reporters, adding that the government expected a further acceleration in the coming year.

India also reported 4.7pc growth in annual infrastructure output in April, signalling a recovery after it slipped to a three-year low of 4.2pc in 2017/18.

Construction activity jumped to 11.5pc during January-March, after a 3.9pc drop in the year-ago period. Analysts said this reflected the fading impact of the government’s move to scrap high-value bank notes that disrupted supply chains and caused job losses.

The data may offer a boost to Prime Minister Narendra Modi, who is set to seek a second term next year. His government launched a nationwide goods and services tax (GST) but its introduction was botched, nearly scuttling India’s growth prospects in the near term.

“(It) seems like we have moved beyond the teething troubles related to GST implementation,” said Tushar Arora, a senior economist at HDFC Bank. “The pick-up in investment activity is also a good sign.” The faster pace of growth in the latest quarter might also strengthen expectations of an interest rate increase by the Indian central bank when it reviews monetary policy next week.

About 40pc of economists polled by Reuters expected a rate rise next week, driven by higher inflation at 4.58pc in April, above the Reserve Bank of India’s target of 4pc for the sixth month in a row.

Growth in Asia’s third-largest economy, reported by the ministry, trumped forecasts in a Reuters poll of annual growth at 7.3pc.

The ministry revised the October-December annual growth down to 7.0pc from the provisional 7.2pc it reported earlier.

DOWNSIDE RISKS

India’s recovery could be threatened by higher global crude oil prices, which this month hit $80 a barrel, their highest since 2014.

India meets 80pc of its oil needs from imports.

Higher oil prices have already pressured the rupee, near a record low last week and Asia’s worst performer.

Alongside, rising global trade tensions due to the imposition of import tariffs by the United States could moderate global trade growth, tempering Indian exports, analysts said.

“We have cut our FY19 GDP forecast by 20 basis points taking into account rising oil prices and potential global trade wars,” said Teresa John, economist, Nirmal Bang Institutional Equities in Mumbai.

However, 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.

Published in Dawn, June 1st, 2018