Sun, Aug 31, 2014 - Page 13 News List

India posts higher-than-expected GDP growth of 5.7%

NY Times News Service, MUMBAI, India

India’s economy grew 5.7 percent in the three months that ended in June from the same period a year ago, according to estimates by the Indian government released on Friday, signaling a gradual revival in Asia’s third-largest economy.

The growth figure, released by the Indian Central Statistics Office, suggests an improved outlook for an economy that has remained at less than 5 percent growth for nearly two years, and compares with 4.6 percent growth in the previous quarter and 4.4 percent growth in the June period last year.

The acceleration was supported by improvement in the manufacturing sector, which expanded at 3.5 percent, compared with a fall of 1.2 percent in the same quarter last year. The mining sector also showed a positive uptick, growing 2.1 percent, compared with a contraction of 3.9 percent in the same period last year.

A marked recovery in industrial production, which expanded 3.4 percent in June and 5 percent in May, has also aided recovery.

Helping to make macroeconomic conditions better, India’s fiscal deficit in the four months that ended last month was 61.2 percent of the full-year target, down from 62.8 percent during the comparable period in the previous year, according to government data. Also, India’s current account deficit was brought down to 1.7 percent of GDP in the fiscal year that ended in March, a sharp decrease from the 4.6 percent recorded in the previous year.

One of the main constraints to economic growth is the backlog of infrastructure projects stalled because of a sluggish bureaucracy, economists say. They also cite the hawkish stance of India’s central bank as it has attempted in recent months to control inflation.

“In the long run, the central bank’s efforts to bring inflation down will be positive, because it’ll make for a more stable macroeconomic environment,” Capital Economics analyst Daniel Martin said. “In the short term, the effect of high interest rates and tight monetary policy will be felt in dampened domestic demand.”

With the election in May of a new government, led by Indian Prime Minister Narendra Modi, sentiment among foreign and domestic investors soared on the expectation of wide-ranging overhauls, given Modi’s business-friendly reputation. However, its policies did not affect the quarter that ended in June.

“The government formation happened almost two months into this quarter — it is too early to expect any impact of the change in government or the improvement in sentiment,” said Samiran Chakraborty, head of research for India at Standard Chartered Bank.

However, growth in the coming quarters rests on the action taken by the government to spur domestic demand, improve manufacturing and provide jobs for millions of young people, analysts say.

“After any such overwhelming election victory, expectations are always unrealistically high, and people forget that governing is a very drawn out, meticulous process that does take time,” HSBC Global Research co-head of Asian economic research Frederic Neumann said. “You cannot fix what ails India overnight.”

Economists say there is a pressing need for structural overhauls such as reducing the rigidity of labor laws, increasing clarity in the tax regime and cutting down on the previous government’s subsidy programs.

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