World Economy

India GDP Soars to 8.2%

The robust GDP number has helped India gallop ahead of China and retain the tag of the fastest growing major economy in the world
The manufacturing sector rose an annual 13.5% compared to a decline of 1.8% in the year ago quarter.The manufacturing sector rose an annual 13.5% compared to a decline of 1.8% in the year ago quarter.

India’s economy expanded at the fastest pace in nine quarters, as strong domestic consumption and robust manufacturing growth overwhelmed any global trade-war worries.

Gross domestic product grew 8.2% in the three months ended June, from a year earlier, the Central Statistics Office said in a statement in New Delhi on Friday. That was faster than the 7.6% median estimate in a Bloomberg survey of 42 economists. Only one economist, Saugata Bhattacharya of Axis Bank Ltd., accurately predicted the pace.

Reforms and fiscal prudence are serving the economy well and this growth in an environment of global turmoil represents the potential of India, Finance Minister Arun Jaitley said in posts on Twitter.

The economy is expected to expand more than 7.5% in the fiscal year to March 2019, Subhash Chandra Garg, economic affairs secretary in the finance ministry, said in New Delhi, adding that growth was now on a steady track.

The manufacturing sector rose an annual 13.5% compared to a  decline of 1.8% in the year ago quarter, while the crucial farm sector rose 5.3%, up from 3% growth in the first of 2017-18.

The data brought cheers to policymakers, who said it highlighted the measures taken to boost growth and pointed to a solid recover underway.

Bibek Debroy, chairman of the economic advisory council to the prime minister attributed this positive trend to continued impetus on structural reforms and effective implementation of ongoing policy initiatives. The robust GDP number has also helped India gallop ahead of China and retain the tag of the fastest growing major economy in the world.

India grew by a sub-par 6.6% in fiscal 2018, provisional estimates showed, as demand was weakened by the lingering effects of a cash ban in 2016 and the chaotic introduction of a consumption tax.

The numbers cement India’s position as the world’s fastest-growing major economy, outpacing China—where an intensifying trade conflict with the US has dimmed the outlook.

The South Asian economy may receive a further boost from an anticipated increase in government spending in coming months, as Prime Minister Narendra Modi tries to boost his party’s prospects for the general election due in 2019.

  Risks Looming

Risks for the economy are looming however. They include higher oil prices, tightening global financial conditions and a shortfall in taxes that could put budget targets out of reach.

The rupee’s slump on Friday to a record below 71 per dollar could deter foreign investors, fan imported inflation and prompt intervention from the central bank—all of which carry implications for growth.

“While the worst appears to be behind us, there could be some headwinds to growth going forward,” said Indranil Pan, chief economist at Mumbai-based IDFC Bank Ltd. Higher interest rates, banking sector stress, and the likelihood that trade wars will weaken the global economy’s momentum are among the concerns he cited.

For now, the International Monetary Fund is forecasting Asia’s third-biggest economy will grow 7.3% in the fiscal year through March 2019 and 7.5% in the next. The Reserve Bank of India, which has increased interest rates twice since June to curb inflation, expects the economy to expand 7.4% in fiscal 2019.

  Household Debt at 7-Year High

Despite a rise in the financial assets of households, Indian families are more indebted than they were at any point in the past seven years. The financial liabilities of households peaked in FY18, at 4% of their disposable income, according to the Reserve Bank of India’s Annual Report for 2017-18, MoneyControl reported.

The sudden spike in gross national disposable income comes after five consecutive years of households tightening their belts and scaling down on debt. Between FY12 and FY17, the gross debt was shaved off in an incremental manner, from 3.2% of disposable income to 2.4%.

Households chipped away at their liabilities as the economy expanded. However, the fall in 40 basis points between FY16 and FY17 should be viewed in consonance with demonetization, a force majeure event that shook the financial world.

The RBI’s report also provides documentary evidence that more Indian families are taking up personal loans to finance marriage expenses, high-end mobile phones, electronic appliances and foreign vacations. The share of personal loans to the total liabilities of households has increased by 5.4 percentage points, from 19.4% at the end of FY15 to 24.8% in March 2018.

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