India’s economy surges 7.9% in Q1

NEW DELHI – India has extended 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, even as some economists continued to question the reliability of the official data.

Mr 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, he 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 per cent year-on-year in the March quarter, data from India’s statistics office showed on Tuesday (May 31), faster than the December quarter’s 7.2 per cent. A Reuters survey of economists had forecast growth of 7.5 per cent 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 rate has overtaken that of fellow Asian giant China, which grew 6.7 per cent in the March quarter - the slowest in the world’s second largest economy in seven years.

The strong Indian growth was driven by a rebound in farm output, an improvement in mining and a sharp pick-up in electricity production. The farm sector grew by 2.3 per cent from a year ago, compared with a 1 per cent contraction in the December quarter. Mining grew 8.6 per cent in the March quarter, up from 7.1 per cent in the previous quarter. Electricity, water and gas production growth jumped to 9.3 per cent from 5.6 per cent in the December quarter.

The figures from India’s statistics office also showed GDP grew 7.6 per cent in the 2015/16 fiscal year that ended in March, in line with an earlier official estimate and up from 7.2 per cent in fiscal 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 per cent - the lowest level in more than five years. The latest GDP data reinforced expectations that the RBI would keep its policy rate on hold at a review next Tuesday.

However, economists such as Capital Economics’ Shilan Shah, expressed skepticism about the official figures.

“Today’s remarkably strong GDP data is hard to believe... These figures are hard to align with other evidence on the economy’s health. For instance, today’s data show manufacturing expanding 9.3 per cent year-on-year last quarter. By contrast, the monthly data on industrial production show output rising just 0.2 per cent year-on-year in the first quarter, from growth of 1.8 per cent year-on-year in the fourth quarter. Meanwhile, growth in bank lending remains close to its slowest rate in over a decade. Survey data also point to slack with firms reporting low rates of capacity utilization,” the Singapore-based Mr Shah said.

“The short point is that – as we have cautioned since the release of the revised GDP series last year – we should take the official GDP data, and the rates of growth they are suggesting, with a pinch of salt,” he warned. - AGENCIES