India retained its position as the world’s fastest growing major economy in the January-March quarter, well ahead of China. India’s GDP or gross domestic productgrowth accelerated to 7.7 per cent in the March quarter – the fastest pace of growth in seven quarters. Strong growth in agriculture (4.5 per cent), manufacturing (9.1 per cent) and construction sectors (11.5 per cent) contributed to the overall growth. Growth for Asia’s third-largest economy, reported by the Ministry of Statistics, trumped forecasts in a Reuters poll for annual growth of 7.3 per cent. GDP had grown at a revised 7 per cent in October-December quarter.
For the full year (2017-18), GDP expanded at 6.7 per cent, lower than the 7.1 per cent recorded in the previous year.
Tushar Arora, senior economist at HDFC Bank, said: “Today’s GDP number is very comforting and should put a lot of concerns to rest. It seems like we have moved beyond the teething troubles related to GST implementation. The pick-up in investment activity (fixed capital formation) is also a good sign.”
The faster pace of growth in the latest quarter might also strengthen expectations for a rate hike by the RBI later this year. “We expect RBI to revise its policy stance in June and follow it up with a hike of 25 bps in August policy,” said Garima Kapoor, economist and vice president at Elara Capital.
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 per cent so far this year against the US.
Banking credit, a main source for corporate borrowing, 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.Separately, infrastructure sector recorded a 4.7 per cent growth in April, as against 2.6 per cent a year ago, data released by government showed.