India's Quarterly Growth Hits 9.3%

Aug 31, 2007 - India's economy accelerated in the first quarter of the fiscal year, driven by robust manufacturing and services sectors, a government report indicated Friday. The growth also came in above economists' expectation.

The Central Statistical Organization of India said that the gross domestic product- GDP surged 9.3% in the June quarter from last year, on top of a 9.1% increase in the previous quarter. This followed growth of 9.4% recorded in the year ended March 2007, marking the fastest rate of expansion in eighteen years. Analysts were looking for 8.9% growth for the June quarter.

The report said that manufacturing output rose 11.9%, while mining and electricity production expanded 3.2% and 8.3% respectively. This compared to last year's growth of 11.7%, 3.6% and 5.3% respectively.

Construction sector grew 10.7% aided by two of its key segments, cement and finished steel, which registered increases of 6.8% and 7.7% respectively.

Among the services sectors, trade, hotels, transport and communication segment rose 12.0%, while financing, insurance, real estate & business services advanced 11.0%. Railways registered solid gains as the net ton kilometers and passenger kilometers expanded 2.6% and 5.1% respectively.

In the transport and communication sectors, production of commercial vehicles expanded 6.6%, while cargo handled at major ports and at airports showed increases of 14.3% and 11.6% respectively. Passengers handled by the civil aviation increased 21.8% and the total stock of telephone connections including WLL and cellular soared 47.0% in the June quarter.

The report said that the aggregate bank deposits advanced 26.1%, while bank credits went up 25.9% over last year. Meanwhile, India's farm sector grew 3.8% in the June quarter.

Private final consumption expenditure in terms of GDP at constant prices was 58.8% compared to 60.8% a year ago. Government final consumption expenditure was estimated at 12.7%, slightly larger than 12.5% last year.

The gross fixed capital formation increased to 29.6% in the June quarter from 27.9% a year earlier, while net exports were up 18.9% from 17.8%.

The wholesale price index WPI covering all commodities rose 5.4% from last year, while the consumer price index for industrial workers -CPI-IW climbed 6.3% over the same period.

India's wholesale price index rose 3.94% in the 12 months to August 18, lower than the previous week's 4.10% due to a decline in some manufactured product prices, a separate government report said Friday.

A section of the market believe that the strong growth is unlikely to make the Reserve bank lean towards an interest rate increase, as they believe that growth will moderate in the coming quarters.

The Reserve Bank of India said on Thursday that India was on the verge of acceleration in its growth trajectory but only if accompanied by vigilance on price and financial stability. The central bank expects 8.5% growth for the current fiscal.

“For monetary policy purposes, the Reserve Bank, in its Annual Policy Statement (April 2007), placed the real GDP growth for 2007-08 at around 8.5 per cent, assuming no further escalation in international crude prices and barring domestic or external shocks,” the central bank said in a statement on Thursday.

The Reserve bank raised interest rates five times between June 2006 and March this year and has also increased banks' reserve requirements, resulting in moderation in activity of the property market, inflation and loan demand in recent months.

Finance Minister Palaniappan Chidambaram said on Friday that 9.3% GDP growth in the April-June quarter was satisfactory and the government would ensure investment and credit flows remained firm.

"Despite compulsions of a tight monetary policy, we will ensure that credit flow to the productive sectors of the economy remains strong," Chidambaram told reporters.