India’s economy expanded at the fastest clip in a year, fueled by domestic demand that may moderate in the face of rising borrowing costs and global slowdown.
Gross domestic product rose 13.5 percent in the April-June period from a year ago, data released by the Statistics Ministry on Wednesday show. That’s the quickest pace since the 20.1 percent growth in the same quarter last year and compares with the median forecast of a 15.3 percent increase in a Bloomberg survey of economists.
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The GDP print was underpinned by robust domestic demand in Asia’s third-largest economy, particularly in the nation’s vast services sector, helped by looser mobility restrictions. Investment during April-June increased 20.1 percent from a year ago while private consumption was up 25.9 percent, data show. Government spending rose 1.3 percent.
Growth in gross value added -- which strips out tax and subsidy transfer payments -- rose 12.7 percent from a year ago.
“Substantial statistical base effect apart, the strong growth print is also a reflection of pent-up demand following the exit from the Omicron wave,” said Kunal Kundu, an economist with Societe Generale GSC Pvt. But there are signs of waning intensity of “tailwind generated by economic reopening,” he said.
India’s world-beating growth may be short-lived as the impact of a broader reopening wanes and the nation grapples with higher borrowing costs, elevated inflation and unemployment, and fears of a global recession.
“The GDP print was a mixed bag, largely a story of service sector rebound,” said Madhavi Arora, an economist at Emkay Global Financial Services Ltd. “Global drags in the form of still-elevated prices, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on growth outlook.”
The central bank has raised the benchmark policy rate by 140 basis points in three rates moves since May and has vowed to do more to bring inflation under its 6 percent target ceiling.
With the latest number India’s GDP has crossed pre-pandemic levels, Finance Secretary TV Somanathan told reporters in New Delhi. India is on course to achieve 7 percent growth in the current fiscal year, he said.
“Looking ahead, we see the pace of recovery slowing further in the near term. The RBI’s rapid pace of rate hikes since April has resulted in a sharp rise in borrowing costs, while the slowing global economy is likely to hamper demand for domestic goods and services,” says Abhishek Gupta, senior India economist.
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