Government: Indian economy to grow 7.2% in the year to the end of March

The FINANCIAL — India has said its economy is set to grow by 7.2% in the year to the end of March.

While the rate of expansion would fall short of the average 9% growth clocked prior to the global financial crisis, the pace is quicker than the 6.7% increase in the previous financial year, firmly placing India as one of the fastest growing major economies in the world, The Wall Street Journal reports. It still trails larger rival China, which grew 8.7% in 2009 and is well-poised to surpass Japan as the second-largest economy in the world this year.

The Reserve Bank of India has forecast the economy to grow 7.5% this fiscal year, although the government's estimate was in line with the median forecast in a Dow Jones Newswires poll of five economists, according to the same source. "This looks like a realistic estimate, with some probability of an upside if we get good agriculture numbers in the March quarter," said Saugata Bhattacharya, senior vice president of business and economics research at Axis Bank.

Government stimulus measures helped to maintain strong growth during the global downturn, but attention is now turning towards cooling rising prices, BBC reports. Some now expect the government to raise interest rates earlier than expected.

Strong growth in manufacturing in India is helping to compensate for falling agricultural output, according to the same source. "These numbers mean that the government will have to consider exiting from the fiscal stimulus in the budget," said Rajiv Kumar at Delhi-based think-tank ICRIER.

Late last week the International Monetary Fund said India has been among the first to recover from the global downturn while New Delhi and Beijing were making a "significant contribution" in the revival of the global economy, AFP reports.

According to the data released today, agriculture and allied activities are, however, projected to shrink by 0.2 per cent this fiscal against 1.6 per cent a year ago, The Times Of India informs. The projected growth this fiscal is likely to be driven by 8.9 per cent expansion in the manufacturing sector against 3.2 per cent a year ago. This sector in particular had got various stimulus doses from the government in the wake of the global financial crisis.

According to the advanced estimates, mining and quarrying is likely to grow by 8.7 per cent compared with 1.6 per cent a year ago, while electricity, gas and water supply by 8.2 per cent against 3.9 per cent, according to the same source. Trade, hotel, transport and communication is also projected to rise by 8.3 per cent against 7.6 per cent last year and construction by 6.5 per cent in FY'10 from 5.9 per cent in FY'09.  However, financing, insurance, real estate and business services are likely witness fall in expansion and grow by 9.9 per cent this fiscal against 10.1 per cent last fiscal and community social and personal services by 8.2 per cent compared with 13.9 per cent.

The Wall Street Journal reports that the government releases advance estimates prior to the release of GDP figures for the second half of the fiscal year and Finance Secretary Ashok Chawla said the final numbers could be higher than the provisional forecast.

"Overall, it looks as though the economic recovery became increasingly private sector-led during the second half of the fiscal year, which in turn bodes well for the sustainability of the pick-up," said Robert Prior-Wandesforde, senior Asian economist at HSBC, according to the same source. He expects the Indian economy to grow 8.5% in the next financial year that begins April 1.