India’s GDP grew at a faster clip in the fiscal second quarter to clock 4.8%, compared with 4.4% reported in the preceding quarter.
Asia’s third-largest economy’s growth in the three months ended September 30th narrowly beat analysts’ forecasts.
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Disappointing recent performance
Recently, Societe General Cross Asset Research noted India’s three-year average current account deficit was below the 4% ‘redline’ threshold. It’s not surprising that Asian currencies have been roiled in the turmoil after the Fed’s taper threat. SocGen thinks India faces two structural problems relating to indebtedness: a very high and chronic public sector debt, and a private sector debt that is growing too fast. In addition, its current balance has been deteriorating rapidly.
In the recent quarters, India’s growth has been disappointing with growth decelerating from above 9% in 2010 to as low as 4.4% in the second quarter 2013. This marks a substantial lag from economic rival China which has maintained growth rates above 7% this year.
However, Goldman Sachs Group Inc (NYSE:GS) forecast on Thursday that India’s growth would accelerate in the next fiscal year (April 1, 2014 to March 31, 2015), driven by improved exports and increase in investment demand.
Agriculture and industry drive recovery
The recent strong performance in India’s GDP is aided by a better performance by agriculture and industry, confirming that a recovery is underway.
While agriculture grew 4.6% compared to 2.7% in the first quarter, electricity production increased 7.7% against 3.7% during the same period. However, growth in the community, social and personal services slowed significantly to 4.2% from 9.4% in the June quarter.
Exuding confidence, Planning Commission deputy chairman Montek Singh Ahluwalia anticipates India’s growth in the second half of the year will be better than the first half.
India’s attempt to control fiscal deficit
The Indian government aims to keep the fiscal deficit down to 4.8% of GDP this year and has already announced steps to cut non-Plan expenditure by 10%.
However, India’s economy has been struggling in recent years, bogged down by the slow pace of reforms, a heavy deficit, a volatile rupee, and rising inflation, which have dampened the government’s efforts to put the country back on the double-digit growth path. The country is also gearing up for general elections next May, and the majority of economists surveyed by Reuters in October anticipate the country’s economy to slow down further in 2013-14.