India’s economy grew by an impressive 8.8 per cent between April to June, in its best performance since 2007, as robust farm and manufacturing output boosted growth to its pre-crisis trajectory.
The country’s economic expansion averaged nearly 9 per cent before the recession, which saw growth drop during the same period last year to 6 per cent in the last quarter before the country’s economy began to rebound.
A CNBC-TV18 poll had forecast 8.9 per cent growth for the April-June period and Tuesday’s numbers are unlikely to jolt the central bank from its path of monetary tightening.
The Reserve Bank of India has raised interest rates four times this year in a bid to tame high inflation, but economists say the effect of those hikes has yet to filter through the economy.
Chief economist at Yes Bank, Shubhada Rao, said she expects interest rates to rise another half percentage point in the coming months. “Inflation concerns still preoccupy monetary policy. We do see some more tightening left.”
Despite the glittering headline numbers - propelled by a 12.4 per cent surge in manufacturing, whilst construction jumped 7.5 per cent and mining output leapt 8.9 per cent, economists say consumer demand remains narrow and the shadow of global economic uncertainty is constraining capital spending.
This is turn could disrupt industrial production and credit growth.
“In terms of sustainability, the growth number will settle at about 8.5 per cent. There will be a deceleration,” said Enam Securities economist Sachchidanand Shukla.
“Global uncertainty has taken its toll. The most important factor is not interest rates or availability of funds. It’s confidence. Every two months, you’re seeing a spate of bad news. In this environment, industrialists with big investment plans would rather wait and watch,” he said.
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