India’s Economy Accelerated in Quarter

New York Times

MUMBAI, India, 01 September 2010: In contrast to the slowing growth and continued high unemployment among many developed countries, India said Tuesday that its economy was accelerating.

 

Sharp increases in manufacturing, mining and services helped India grow at a rate of 8.8 percent in the three months that ended in June, compared with the same period a year earlier. It was its fastest pace in more than two years. The economy grew at a rate of 8.6 percent in the quarter that ended in March.

 

Economists said the new data reflected the strength of India’s recovery from the global financial crisis, but they added that the economy might not be able to keep up the pace in coming months. The growth rates of industrial production and exports, for instance, have begun to fall. India, along with China, is still considered a developing economy.

 

Indian leaders have said they would like to push the economy’s growth rate up to 9 percent — a pace it achieved a couple of years ago — and eventually to 10 percent. India needs faster growth to alleviate poverty and increase job opportunities for a young population; about half the Indian people are 25 or younger.

 

Shoppers looked at home appliances inside an electronics store in Mumbai, India.

 

But economists say that those higher growth rates will be hard to achieve until India invests much more in its infrastructure and further loosens government control over the economy. Moreover, a slowdown in the rest of the world could hurt India’s growth by reducing the flow of foreign investment into the country and reducing demand for its exports.

 

“This was the quarter in which you would have seen the fastest year-on-year number for this year,” said Tushar Poddar, an economist with Goldman Sachs in Mumbai who projected that India would grow at a rate of 8.2 percent during the 2010-11 fiscal year, which started in April. “I don’t think the 9 percent is coming anytime soon.”

 

The Indian government estimates the economy could grow as much as 8.75 percent this year, and the International Monetary Fund says growth could hit 9.4 percent.

 

Like China, India has rebounded relatively quickly from the global recession. But the two countries have done so differently. Domestic consumption, which is not as big a component of the Chinese economy, has been crucial in the revival of the Indian economy.

 

Car sales in India, for instance, climbed 38 percent in July, and large carmakers like Ford, Nissan and Volkswagen are significantly expanding production capacity in the country.

 

Other foreign companies are also looking to tap India as it spends more. Harley-Davidson, the motorcycle maker, and California Pizza Kitchen, the American restaurant chain, recently opened their first Indian outlets in Mumbai.

 

This year, strong monsoon rains have helped bolster the Indian agricultural sector, which sustains more than half of its 1.2 billion people, though it makes up just 16 percent of the economy. Agriculture grew at a pace of 2.8 percent in the latest quarter, up from 1.9 percent a year earlier, when several parts of the country suffered a drought.

 

Optimism about the economy and strong corporate profit growth have helped push the Indian stock market to its highest level in two years. On Tuesday, however, the country’s benchmark stock indexes were down modestly.

 

But stronger growth has also helped stoke inflation, especially for food, energy and other essential items. Wholesale prices have been climbing at an annual rate of about 10 percent in recent months.

 

The Reserve Bank of India has raised its benchmark interest rates three times so far this year in response to higher inflation, and officials have indicated that further increases might be needed.