India's economy grew a slightly faster than expected 6.1 percent in the June quarter from a year earlier, as government stimulus measures helped spur demand, although a poor monsoon threatens to crimp growth later in the year even as it drives inflation.
\n
The annual growth for India's fiscal first quarter was just above a median forecast of 6 percent in a Reuters poll, but lower than the year-ago quarter's 7.8 percent expansion.
\n
The manufacturing sector expanded 3.4 percent in April-June from a year earlier, while farm output grew an annual 2.4 percent, government data showed on Monday.
\n
For the full year, India's economy grew 6.7 percent in 2008/09, much slower than its expansion of 9 percent or more in the previous three years.
\n
Economists have said poor monsoon rains could erode economic growth by 1 or 2 percentage points in the current fiscal year, although the central bank said last week that dry conditions are more likely to drive inflation than erode growth.
\n
KEY POINTS:
\n
- Farm sector grew 2.4 percent in the June quarter compared with 3.0 percent in the year-ago quarter.
\n
- Manufacturing grew 3.4 percent in June quarter compared with 5.5 percent in the year-ago quarter.
\n
- Mining output grew 7.9 percent in the June quarter compared with 4.6 percent in the year-ago quarter.
\n
- Financing, insurance, real estate and business service grew 8.1 percent in the June quarter versus 6.9 in the year-ago quarter
\n
-Construction grew 7.1 percent in the June quarter versus 8.4 percent in the year-ago quarter.
\n
COMMENTARY:
Amol Agrawal, Economist, IDBI GILTS, Mumbai:
\n
"For the year as a whole, the growth should be around 6.5 to 7 percent as recovery is showing elsewhere also. But agriculture is a big dampener and the growth forecast is again based on global recovery. If that stumbles again, then one can't say."
\n
Deepali Bhargava, Economist, ING VYSYA BANK, Mumbai:
\n
"A positive surprise has come in from construction. This may be a positive lead for investment. Higher manufacturing growth bodes well with the overall industrial growth revival story. But we are pessimistic on the H2 agriculture growth."
\n
Rupa Rege Nitsure, Chief Economist , BANK of BARODA, MUMBAI:
\n
"It is primarily reflecting last year's good rabi (winter) crop and the government's consistent focus on the construction sector. But going forward, sustaining gross domestic product above 6 percent looks difficult due to the huge setback received on the monsoon front. The policy implications of this number for the Reserve Bank of India are few, given the limited manoeuvrability due to the constraint posed by the huge government borrowing. For the year as a whole, we maintain the forecast of 6.1 percent growth.
MARKET REACTION:
\n
The benchmark stock index slightly pared losses to 1 percent from 1.1 percent before the data release.
\n
The benchmark 10-year bond yield was unmoved at 7.45 percent, its highest in 9- months.
\n
The partially convertible rupee was unchanged at 48.85/87 from earlier.
BACKGROUND: - India's economy, Asia's third-largest, is largely driven by domestic demand. it grew 6.7 percent in the fiscal year that ended in March after three years of expansion of at least 9 percent.
\n
- The global financial crisis has hurt demand for exports, although India's domestically driven economy has fared better than most.
\n
- Authorities have rolled out a slew of steps to tackle the slowdown, including aggressive interest rate cuts, tax and duty cuts and extra spending.
\n
- Economists say drought in many of the country's districts and the global slump could hinder faster recovery, while the Reserve Bank has warned that the poor monsoon rains are more likely to drive inflation than erode growth.
\n
- Private-sector economists said a drought could potentially erode economic growth this year by 1 or 2 percentage points. A weak recovery in the United States and elsewhere could also slow India's return to a high rate of growth.
