India’s economic growth surges in March quarter

Indian labourer Krishnan, 41, bundles finished coconut leaves used to make broom sticks at a production unit in Chennai on May 31, 2016. India's economy grew 7.6 percent in 2015-16, official figures showed May 31, retaining its place as the world's fastest-growing major economy and providing a boost to the right-wing government as it marks two years in power. Gross domestic product (GDP) expanded at a faster pace in the fourth quarter of the financial year, growing 7.9 percent year-on-year, the Central Statistics Office data showed. / AFP PHOTO / ARUN SANKAR

NEW DELHI: India gathered momentum in the March quarter to extend its lead as the world’s fastest growing large economy, helping Prime Minister Narendra Modi craft an impressive sales pitch for meetings with investors in the United States next week.

Modi is due to travel to Washington on June 7-8 where he will meet heads of top US companies.

Having swept to power two years ago promising to revitalise Asia’s third-largest economy, Modi has boosted spending on defence and infrastructure, while consumer demand has risen thanks to lower interest rates.

Those pro-growth policies helped gross domestic product grow 7.9% year-on-year in the March quarter, faster than the December quarter’s 7.2%.

A Reuters survey of economists had forecast growth of 7.5% in the March quarter.

The strong headline number masks subdued private investment and shrinking exports, which continue to hold India back.

Still, India’s growth has overtaken that of fellow Asian giant China, which grew 6.7% in the March quarter - the slowest in the world’s second largest economy in seven years.

The figures from India’s Statistics office also showed GDP grew 7.6% in the 2015/16 fiscal year that ended in March, in line with an earlier official estimate. Growth was 7.2% in 2014/15.

Success in bringing down inflation has given the Reserve Bank of India (RBI) room to cut its policy repo rate by 150 basis points since January 2015, reducing it to 6.50% - the lowest level in more than five years.

The GDP data reinforced expectations that the RBI would keep its policy rate on hold at a review next Tuesday.

“Momentum is building up faster than anticipated and there is a demand pick-up on the horizon,” said Shubhada Rao, chief economist at Yes Bank.

“This definitely spells out a positive story that there will soon be a recovery in private sector capex.”

Growth in the March quarter was driven by a rebound in farm output, an improvement in mining and a sharp pickup in electricity production.

The farm sector grew by 2.3% from a year ago compared with a 1.0% contraction in the December quarter.

With good rain forecast, after two successive years of drought, farm sector output should improve in coming months and lift depressed demand in the countryside where two-thirds of Indians live.

Mining grew 8.6% in the March quarter, up from 7.1% in the previous quarter. Electricity, water and gas production growth jumped to 9.3% from 5.6% in the December quarter. - Reuters