India growing at fastest rate for decades

zoom

India expects its fastest growth in almost two decades this fiscal year, underlining the country's growing clout in the world economy as manufacturing and service firms power ahead.

In its first official estimate for the current fiscal year ending in March, the government said on Wednesday that the economy, Asia's fourth-largest, was expected to grow 9.2 percent.

"This year nominal GDP is expected to touch about $900 billion, and next year India is expected to cross $1 trillion in GDP -- entering the big league," said Shuchita Mehta, chief India economist at Standard Chartered Bank in Mumbai.

World Bank data shows that at the end of 2005 only nine economies had a GDP of more than $1 trillion, with Brazil, South Korea and India the next closest with GDPs of almost $800 billion.

The stock market hit a record high after the estimate, reflecting growing investor interest in globally ambitious firms such as Tata Steel, which last week made India's largest-ever foreign takeover.

The growth estimate was below the 10.7 percent pace notched up by neighbour and rival China in 2006, but it was higher than 8.6 percent forecast by economists in a Reuters poll and above the central bank's prediction of 8.5-9.0 percent.

Manufacturing output growth was seen at 11.3 percent compared with 9.1 percent a year ago, while services, which make up more than half of economic activity, were seen growing 11.2 percent in 2006/07 compared with 9.8 percent a year earlier.

Farming, which generates a fifth of GDP but employs about 60 percent of the billion-plus population, was estimated to grow 2.7 percent in 2006/07.

Electricity was seen expanding 7.7 percent and mining 4.5 percent.

The government wants to raise sustainable growth to 9 percent and beyond in order to spread wealth to the 260 million poor and generate the revenue to bring down its large fiscal deficit.

"Is 9 percent too high? I don't think so," Ashok Lahiri, India's chief economic adviser, told reporters.

"If the question is whether high growth entails overheating, my answer is an emphatic no," the finance ministry official said.

The media is also excited that the country is elbowing its way onto the world stage.

Tata Steel won a dramatic takeover battle last week to buy Anglo-Dutch steel maker Corus for $12.2 billion, sparking a wave of national pride reflected in a newspaper campaign by the Times of India called "India Poised".

Finance Minister Palaniappan Chidambaram had previously said this fiscal year's growth could be close to 9 percent.

The partially convertible rupee showed little reaction to the official estimate, holding steady at 44.08 per dollar, just below a recent one-year high.

The yield on government 10-year bonds inched down to 7.73 percent from 7.74 percent.

D.K. Joshi, senior economist with rating agency Crisil, said growth looked more sustainable than in previous cycles because it was backed by a high investment rate, good consumption and export demand.

But he and other analysts expected growth to moderate in coming quarters and some said Wednesday's figure could be revised down to just below 9 percent later on.

Joshi also saw the central bank continuing to raise interest rates to cool inflation.

"The numbers mean further monetary tightening is in store," he said.

India's economic growth has averaged 8.3 percent over the past three fiscal years. The government last week revised up growth for fiscal 2005/06 to 9.0 percent from 8.4 percent.

However, the red-hot pace is straining infrastructure and leading to a squeeze on capacity, which is fuelling inflation, now at a two-year high above 6 percent.

The central bank raised its key lending rate last week to 7.50 percent, a four-year high, following four increases in 2006 to cool inflation and rapid credit growth spurred by demand for houses, cars and consumer goods.

Print | Email | Discuss this article |

USER COMMENTS (0 COMMENTS)

POST A COMMENT

CLICK HERE TO POST A COMMENT

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.