SECOND QUARTER GDP AT 7.9%

India’s economy grew at its fastest rate in 18 months in the quarter through September, smashing expectations and adding pressure to bring forward an interest rate rise and cut stimulus spending as inflation mounts.

Asia’s third-largest economy grew 7.9% in the past quarter from a year earlier, far above forecasts of 6.3%, but growth was expected to slow this quarter when the impact of a weak monsoon would be seen on crops.

The expansion was driven by government spending, manufacturing, services, and a better-than-forecast farming output, sending bond yields and swap rates higher as investors bet on a rise in rates and the finance minister said growth could hit 7% in the fiscal year ending in March 2010.

“This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by end of the calendar year,” said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

“The exit from the fiscal stimulus by the government may also be earlier post the GDP data.”
Prior to the data, most economists had predicted a rate rise sometime between January and April 2010.

In the June quarter, India’s economy grew 6.1% from a year earlier, and Prior-Wandesforde said that by his calculation the last quarter’s growth was the sharpest on a quarter-by-quarter basis since quarterly data began in 1996.

Manufacturing output grew 9.2% in the quarter as consumers bought more cars and other goods.

Larger neighbour China, which along with India is helping to pull the global economy out of its worst recession in decades, clocked growth of 8.9% during the same quarter.

MINT

INDIA: POWER HOUSE OF GLOBAL GROWTH

India is predicted to register GDP growth of about 7.5% this financial year, a drop from 9% that the country achieved last year. In contrast, however, global economic growth is projected to have shrunk to 3.7% in 2008 from about 5% the previous year, according to estimates of the International Monetary Fund. An earlier study by the Economic Intelligence Unit suggested India will contribute more than 12% toward global economic growth by 2020 from approximately 5% in 2006.

This is also a reflection of the ‘Decoupling Theory’ for the emerging markets, particularly in Asia, which are less dependent on developed markets. Growth deceleration was much less marked in emerging markets in the first half of 2008 than in developed markets, according to Morgan Stanley, the U.S. based global financial services firm. It forecast developed market growth to slow to 1% in 2009 from 2.5% in 2007 while emerging markets to slow to 6.6% from 7.8% for the same period.

Foreign companies invested more than $12 billion in acquiring Indian companies in 2008, slightly less than the $15 billion a year earlier. Indian companies reciprocated by investing a near similar amount in acquiring companies overseas. See Mega Deals ‘Top 20’ Deals of the year 2008.