India regains status of fastest growing economy in December quarter

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India regained its status as the world’s fastest-growing major economy in the October-December quarter, surpassing China’s growth after a gap of one year, boosted by higher government spending and a pick-up in manufacturing and services.

Asia’s third largest economy grew 7.2 percent in the December quarter, its fastest pace in five quarters, data released by the Ministry of Statistics showed on Wednesday, surpassing China’s 6.8 percent annual pace for that period.

The last time India had a faster growth rate was in the final three months of 2016.

India revised its 2017/18 GDP growth forecast to 6.6 percent from 6.5 percent earlier and revised upward its GDP growth for the July-Sept quarter, to 6.5 percent, from an earlier estimate of 6.3 percent.

Analysts polled by Reuters had forecast annual growth of 6.9 percent, compared with the prior figure of 6.3 percent for July-September.

The improvement comes as India’s manufacturers and service industries have been overcoming disruptions from the bumpy launch of a national sales tax in July.

“Settling down of Goods and Services Tax (GST)reforms will boost growth in next fiscal year,” said Anita Gandhi, a director at Arihant Capital Markets.

Monetary policy

Wednesday’s growth figure will not change expectations for monetary policy, however. Most analysts still anticipate the Reserve Bank of India (RBI), which is balancing concern with inflation and support for growth, to hold interest rates at its next policy meeting on April 5.

“RBI has to balance between growth and inflation. The recently released minutes of the MPC’s last policy meeting showed growing concerns of embers over continued inflationary risks arising from high food and crude prices,” Gandhi said.

The GDP data could help Prime Minister Narendra Modi, who faces criticism over mounting bad loans at state banks and a $1.77-billion fraud at state lender Punjab National Bank , the biggest in the country’s banking history.

Last week, Modi told industrialists that his government, which has a “twin balance sheet” problem resulting from bad debt in banks and many businesses, was determined to put the economy back on a higher growth trajectory.

Modi is trying to accelerate growth through higher state spending, including 2.1 trillion rupees ($32.36 billion) for recapitalization of state banks, which are beset with mounting bad loans of nearly $148 billion.

He has stepped up spending on infrastructure and welfare projects to boost growth ahead of national elections in 2019.

This has widened the fiscal deficit for the current fiscal year, ending in March, to 3.5 percent of GDP, instead of the figure of 3.2 percent projected earlier.

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