India’s economy grows faster than expected in June quarter

[MUMBAI] India’s economy expanded faster than expected in the April-June quarter, easing fears that the Iran war would weaken growth and underscoring the resilience of Asia’s third-largest economy.

Gross domestic product grew 7.8 per cent from a year earlier in the April-June quarter, beating the 7.3 per cent median estimate in a Bloomberg survey and matching the previous quarter’s pace.

The RBI had forecast 7 per cent growth for the quarter and expects 6.7 per cent for the full year.

Bonds held losses with the yield on the benchmark 10-year government paper up 4 basis points to 6.95 per cent. The rupee closed 0.2 per cent at 95.17 to a dollar before the data. Stocks had closed before the GDP release, with the NSE Nifty 50 Index down 0.4 per cent at 24,080.40.

Manufacturing and financial services helped drive growth, data showed. Manufacturing expanded 9.2 per cent in the three months to June, up from 8.3 per cent a year ago, while financial services grew 12.1 per cent, compared with 8.8 per cent in the year earlier period.

The stronger performance reinforces the government’s recent pitch to global investors that India can withstand external shocks. The South Asian nation has been particularly exposed to the closure of the Strait of Hormuz, a key route for oil shipments to a country that imports nearly 90 per cent of its crude.

India remains the world’s fastest-growing major economy, but the pace falls short of the 9.25 per cent annual growth the government estimates is needed to achieve Prime Minister Narendra Modi’s goal of developed-nation status by 2047.

HDFC Bank economist Sakshi Gupta raised her full-year growth forecast to 7 per cent from 6.8 per cent after the stronger-than-expected first-quarter expansion, citing robust consumption, government spending and investment. A broadly steady monsoon should also help limit risks to rural demand, she said.

Stronger growth could complicate the outlook for interest rates. The RBI kept its benchmark rate unchanged at 5.25 per cent in August, though policymakers have signaled that a hike may be needed later this year if inflationary pressures build.

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Investment strengthened sharply, with gross fixed capital formation rising 11.9 per cent from a year earlier in the April-June quarter, up from 5.8 per cent a year ago. Private consumption, which accounts for nearly 60 per cent of the economy, grew 7.1 per cent, compared with 6.8 per cent a year earlier. BLOOMBERG