India's Economy Grows 7.7%?

NEW DELHI -- The Indian economy grew at a steady pace in the April-June quarter due to strong expansion in services output, raising expectations that the Reserve Bank of India will continue tightening monetary policy to restrain inflation.

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Gross domestic product grew 7.7% from a year earlier, the government said Tuesday. The reading was in line with the consensus expectation of a 7.6% increase in a poll of 17 economists.

The pace was little changed from last quarter's 7.8% growth but down from the 8.8% increase a year ago.

Government bonds slipped on the data. The benchmark 7.80% 2021 bond fell to 96.47 rupees from 96.54 rupees before the data.

Growth in Asia's third-largest economy is moderating due to sharp rate increases by the central bank, but remains robust at a time when advanced economies are struggling to ward off a new slowdown.

The data are likely to prompt the Reserve Bank Of India to continue raising interest rates when it meets to review monetary policy Sept. 16. Inflation eased in July to 9.22% on year from 9.44% in June, but high prices of manufactured products and supply bottlenecks have economists predicting inflation will remain at 9%-10% until about December.

The RBI has been one of the most aggressive of all central banks, raising its lending rate 11 times since March 2010.

Economists reckon there are more rate increases to come as inflation remains well above the central bank's comfort level.

"This growth rate is broadly in-line with expectations and may give some comfort to the RBI and help it battle inflation without worrying too much about growth," said Nitesh Ranjan, an economist at Union Bank of India.

Saumitra Chaudhuri, a member of the government's Planning Commission and the Prime Minister's Economic Advisory Council, said the July-September GDP data should be stronger than the April-June data, "and the second half will be significantly higher."

But some analysts say growth could slow further as past rate raises work their way through the system.

India's economy has been growing faster than any major economy but China's, driven by strong local demand and rising exports. But mounting economic worries in the U.S. and Europe, coupled with slowing domestic investments due to costlier credit, are clouding growth prospects.

On Aug. 1, the Prime Minister's Economic Advisory Council cut its economic growth forecast for this fiscal year, which began in April, to 8.2% from 9.0%. The Indian economy expanded 8.5% last fiscal year.

source:wjs.com

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