Indian economy shows 8.8% growth

FT.com:
By Amy Kazmin in New Delhi

India’s economy grew 8.8 per cent from April to June compared with the same period last year, driven by a strong pick-up in manufacturing, trade, transport and services. The growth in the first quarter of India’s financial year – which runs from April to March – was largely in line with expectations, and was an acceleration of the 8.6 per cent growth recorded in the previous quarter.

The robust growth will encourage the Reserve Bank of India, the central bank, to persist with its course of monetary tightening and interest rate normalisation, as it tries to control inflation, which remains high after falling from its peak double-digit levels. India’s economy expanded 7.4 per cent last year, despite a severe drought that hit farm production and caused food prices to rocket. New Delhi is forecasting that growth will exceed 8.5 per cent in the current financial year, and that inflation will drop sharply to more manageable levels. Montek Singh Ahluwalia, deputy chairman of the influential planning commission, said the pace of growth of India’s manufacturing sector – which expanded a robust 12.2 per cent in the first quarter – will slow in the coming months for statistical reasons.

But he said farm output, which rose 2.8 per cent this year compared with 1.9 per cent last year, would be substantially stronger this year because of the bountiful monsoon rains. Data indicates that India’s sown crop acreage is now 10 per cent higher than it was at the same time last year Trade, transport and services also grew 12.2 per cent during the first quarter, up from 5.5 per cent last year, buoyed by a rebound in domestic air travel, which fell sharply during the global economic slowdown.

Despite its healthy domestic economic growth, India has recorded a sharp 18.8 per cent drop in its foreign direct investment inflows, to $10.78bn, during the first six months of 2010. The drop was particularly precipitous in June, when FDI fell 46.5 per cent from a year earlier to $1.38bn.