New Delhi: Thursday’s GDP data is likely to be welcomed by Prime Minister Narendra Modi, who is set to seek a second term next year. India retained its position as the world’s fastest-growing major economy in the January-March quarter, well ahead of China.
While China grew 6.8% in the January to March quarter, India’s GDP or gross domestic product growth accelerated to 7.7% in the March quarter – the fastest pace of growth in seven quarters.
Strong growth in agriculture (4.5%), manufacturing (9.1%) and construction sectors (11.5%) contributed to the overall growth.
Growth for Asia’s third-largest economy, reported by the Ministry of Statistics, trumped forecasts by experts for annual growth of 7.3%. GDP had grown at a revised 7 per cent in October-December quarter.
For the full year (2017-18), GDP expanded at 6.7%, lower than the 7.1% recorded in the previous year.
The faster pace of growth in the latest quarter might also strengthen expectations for a rate hike by the RBI later this year.
Many economists expect India’s economy to grow more than 7% in 2018-19, helped by a normal monsoon and a pickup in private investment.
To help businesses tide over multiple taxations, Modi government launched nationwide goods and services tax but a botched implementation of the GST nearly scuttled India’s growth prospects in the near term.
Though global rating agency Moody’s earlier this week cut its GDP growth forecast for India due to higher oil prices and tighter financial conditions, it still expects the country’s GDP to expand by 7.3% this fiscal year.
GDP growth in 2018-19 could get a boost from prospects of good monsoon, potentially brightening the outlook for agricultural output.
Economists also point out to many risk factors that could put downward pressure on GDP growth. Possibly, the biggest risk could be rising crude oil prices, which this month hit $80 a barrel, their highest since 2014. India meets 80% of its oil needs from imports.
Domestic prices of petrol and diesel are near all-time highs, putting pressure on the government to bring down taxes on the fuels.
Rising oil prices could also weigh on the consumer demand, say, economists. The government’s Economic Survey, issued in January, estimated that every $10 per barrel rise in global oil prices cuts growth by 0.2-0.3 percentage points.
Higher crude oil prices have already hurt the rupee, which slumped to near a record low this month. It is down about 6% so far this year against the US dollar.
Banking credit has remained weak following a surge in bad loans, as banks have been reluctant to extend new loans. The 21 state lenders hold two-thirds of banking assets and accounted for the bulk of the record $150 billion of soured loans in the banking sector in 2017.