Friday May 29, 05:21 PM
India economic growth beats forecasts
By Penny MacRae
NEW DELHI (AFP) - India reported unexpectedly robust economic growth Friday, sending stocks to a near nine-month high, as analysts said the worst may be over for Asia's third-largest economy.
India's economy, which has weathered the global downturn better than many of its peers, expanded by 5.8 percent in the last quarter of the fiscal year to March 2009, beating forecasts of 5.0 percent, boosted by government spending.
"We've definitely turned the corner," Rajeev Malik, economist at Australia's Macquarie Capital Securities, told AFP.
Growth for the full-year was 6.7 percent, down from the nine percent posted a year earlier, but outpacing predictions of as low as 6.0 percent.
"What you're seeing... is essentially the effect of government spending," said D.K. Joshi, economist at Indian credit rating agency Crisil.
Government consumption grew 22 percent year-on-year in the final quarter as authorities spent on social programmes and construction, helping to offset a sharp decline in private consumption and manufacturing.
Mumbai's benchmark 30-share index jumped 2.3 percent or 329.24 points to close at 14,625.25, its highest in nearly nine months, following the figures.
Analysts still expect the economy to slow more in the year to March 2010 due to fallout from the worldwide slump but said the deceleration may not be as severe as earlier forecast and the economy was on the mend.
Foreign capital now is pouring back into India amid signs of economic "green shoots" such as higher car sales and cement output following aggressive interest rate cuts and government stimulus packages.
"A main reason (for the slowdown) was financing drying up as a result of the global crisis," said Malik. "The revival in capital markets automatically means one of the negatives crippling investment is addressed."
Growth was seen at around six percent in the first half and closer to seven percent in the second. Next year, economists expect growth of eight percent.
The economy still has "significant pent-up demand for investment, especially in infrastructure and in affordable housing," said Goldman Sachs (NYSE: GS - news) economist Tushar Poddar.
The numbers gave cheer to the Congress-led government, which swept back to power earlier this month on a poverty alleviation platform. Its strong mandate is seen as a positive for investors, spelling political stability.
Finance Minister Pranab Mukherjee has said the government will make increasing growth its top priority to help India's "common man" -- even at the risk of ballooning an already large fiscal deficit.
He said "prophets of doom," referring to ratings agencies, were focusing on increased public spending without realising higher growth could help get India back on the path of fiscal rectitude through stronger tax revenues.
New Delhi hopes to return growth back to nine percent and even into double-digits, saying it needs such expansion to lift hundreds of millions of Indians (INDN.PK - news) out of poverty.
Friday's figures were also helped by an upward revision of third-quarter growth to 5.8 percent from 5.3 percent and a stronger performance in agriculture which accounts for nearly 20 percent of gross domestic product.
Eyes will now be on the budget, due in early July, to see how quickly the government moves on reforms such as opening up the financial sector to more foreign firms and disinvestment, seen as boosters to growth and fiscal health.
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