India’s Growth Accelerates for First Time Since 2007

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India the next engine of growth where deficit spending remained high and the recession was largely averted?

All they need to do is let themselves become a large net importer.

India’s Growth Accelerates for First Time Since 2007

By Cherian Thomas

Aug. 31 (Bloomberg) — India’s economic growth accelerated
for the first time since 2007, indicating the global recession’s
impact on Asia’s third-largest economy is waning.

Gross domestic product expanded 6.1 percent last quarter
from a year earlier after a 5.8 percent rise in the previous
quarter, the Central Statistical Organisation said in New Delhi
today. Economists forecast a 6.2 percent gain.

India joins China, Japan and Indonesia in rebounding as
Asian economies benefits from more than $950 billion of stimulus
spending and lower borrowing costs. India’s recovery may stall
as drought threatens to reduce harvests and spur food inflation,
making it harder for the central bank to judge when to raise
interest rates.

“The weak monsoon has complicated the situation for the
central bank,” said Saugata Bhattacharya, an economist at Axis
Bank Ltd. in Mumbai. “Poor rains will hurt growth and stoke
inflationary pressures as well.”

India’s benchmark Sensitive stock index maintained its
declines today, dropping 1 percent to 15755.33 in Mumbai at
11:12 a.m. local time. The yield on the key 7-year government
bond held at a nine-month high of 7.43 percent, while the rupee
was little changed at 48.86 per dollar.

Before the rains turned scanty, the Reserve Bank of India
on July 28 forecast the economy would grow 6 percent “with an
upward bias” in the year to March 31, the weakest pace since
2003. It also raised its inflation forecast to 5 percent from 4
percent by the end of the financial year. The key wholesale
price inflation index fell 0.95 percent in the week to Aug. 15.

‘Recovery Impulses’

The central bank’s Aug. 27 annual report said withdrawing
the cheap money available in the economy would heighten the risk
of weakening “recovery impulses,” while sustaining inexpensive
credit for too long “can only increase inflation in the

As the global recession hit India, the central bank
injected about 5.6 trillion rupees ($115 billion) into the
economy, which together with government fiscal stimulus amounts
to more than 12 percent of GDP.

China’s economic growth accelerated to 7.9 percent last
quarter from 6.1 percent in the previous three months, aided by
a 4 trillion yuan ($585 billion) stimulus package and lower
borrowing costs. China and India are the world’s two fastest
growing major economies.

Interest Rates

The Reserve Bank of India kept its benchmark reverse
repurchase rate unchanged at 3.25 percent in its last monetary
policy statement on July 28 and signaled an end to its deepest
round of interest-rate cuts on concern that inflation will
“creep up” from October. The next policy meeting is scheduled
for Oct. 27.

Manufacturing in India rebounded to 3.4 percent growth in
the quarter ended June 30 after shrinking 1.4 percent in the
previous three months. Mining rose 7.9 percent compared with 1.6
percent while electricity growth almost doubled to 6.2 percent
during the period, today’s statement said.

India’s move to a higher growth trajectory is on course,
Ashok Chawla, the top bureaucrat in the finance ministry, told
reporters in Mumbai.

Drought or drought-like conditions has been declared in 278
districts in India, or 44 percent of the nation’s total, as
rainfall has been 25 percent below average so far in the four-
month monsoon season that started June 1, the farm ministry said
Aug. 27.


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