India’s economy grows faster-than-expected in Jan-March on strong manufacturing

By Thomson Reuters May 31, 2024 | 7:47 AM

By Manoj Kumar and Aftab Ahmed

NEW DELHI (Reuters) -India’s economy grew at a faster-than-expected pace of 7.8% year-on-year in the January-March quarter, helped by strong growth in the manufacturing sector, and economists expect the momentum to remain strong this year.

The gross domestic product growth in the first three months of 2024, the fourth quarter of 2023/24 fiscal year, was lower than a revised 8.6% expansion in the previous quarter, government data released on Friday showed.

However, it was higher than the 6.7% growth forecast by economists in a Reuters poll.

In the October-December quarter, the headline growth figure was boosted by a sharp fall in subsidies, while gross value added (GVA), seen by economists as a more stable measure of growth, rose 6.5%.

In the March quarter, GVA rose by 6.3%.

India’s economic growth for the full fiscal year 2023/24 was revised up to 8.2%, the highest among large economies globally, from an earlier government estimate of 7.6%.

The growth figures will be a boost for Indian Prime Minister Narendra Modi, who is largely expected to win a third term in the national election, with results scheduled to be released on June 4.

Manufacturing output rose 8.9% year-on-year in the three months ending in March, compared with a revised expansion of 11.5% in the previous quarter, while farm output growth accelerated to 0.6% after revised 0.4% growth in the previous quarter, the data showed.

Investors are looking ahead to the election results and full-year budget in mid-July to assess any steps by the new government to boost the economy.

The Reserve Bank of India’s (RBI) record surplus transfer of 2.11 trillion rupees ($25.3 billion) earlier this month is likely to allow the government to increase state spending or cut the fiscal deficit.

The RBI’s monetary policy committee is expected to hold benchmark repo rate at 6.50% at its June 5-7 meeting, with inflation staying above 4%, the mid-point of its 2-6% target, economists said in a Reuters poll.

High-frequency indicators data for April including auto sales, housing loans and fuel consumption reflected strong urban consumer demand, though there were concerns about weak rural demand despite forecasts of a above normal monsoon this year.

Globally, economic activity remains resilient, with China’s economy growing 5.3% year-on-year and the U.S. economy expanding at 1.3% annualised rate in March quarter amid signs of inflation easing, strengthening hopes of a pick up in India’s exports.

On Wednesday, S&P Global raised its sovereign rating outlook for India to “positive” from “stable”, adding that regardless of the outcome of the national elections it expected broad continuity in economic reforms and fiscal policies.

It expects the economy to grow at 6.8% in the current fiscal year starting April, and close to 7% annually over the next three years.

(Reporting by Manoj Kumar, Aftab Ahmed; editing by Philippa Fletcher and Toby Chopra)