Boosted by farm out and manufacturing, the Indian economy grew at 8.9% in the second quarter (July-September) of the current fiscal FY11.
While the agriculture sector grew at 4.4% compared to 0.9% during the same quarter a year ago, manufacturing registered growth of 9.8% compared to 8.4% a year ago.
However, services sectors such as community, social and personal as well as financial and business saw lower level of growth due to reduced government spending and sluggish growth in the financial sector.
The Central Statistical Office which releases the data also revised the gross domestic product growth rate for the first quarter (April-June) of the current fiscal from 8.8% to 8.9% due to the introduction of a new inflation series based on the base year 2004-05.
While the Reserve Bank of India (RBI) has estimated growth to be 8.5% in 2010-11, finance minister Pranab Mukherjee has said growth may touch 8.75% this fiscal.
Reuters Adds: “Governor Subbarao has strongly hinted that the RBI will take a break from raising policy rates for the next one or two months, but the strong growth numbers today may change his mind,” said Brian Jackson, strategist at the Royal Bank of Canada in Hong Kong.
“Inflation is still the number one policy focus, and we continue to expect more rate hikes in the months ahead, perhaps as soon as the next meeting in December,” he said.
India’s benchmark 10-year bond yield was up 3 basis points on the day, despite further extension of liquidity easing measures by the RBI late on Monday, which disappointed markets that had instead been hoping for a cut in banks’ reserve requirements.
Markets expect the RBI to hold rates steady during its policy statement in December, after Subbarao said early this month that the RBI was unlikely to raise rates for the next three months.
Private spending in the quarter was up 9.3% on the year, from 7.8% in the previous quarter, although investment grew at 11.1%, slowing from 19% in the first fiscal quarter.
Signs of easing inflation, a fragile global economy and weaker industrial output in September were likely to forestall any rise in rates for the rest of 2010, some analysts said.
“Unless the full year growth looks likely to cross 9%, the central bank is unlikely to get aggressive again in raising rates,” said Anjali Varma, economist at MF Global in Mumbai.
“I do not expect any more rate hikes in this fiscal year. We also have to look at how industrial production fares going ahead, as that has started slowing down only now.”
The strong GDP growth comes despite the RBI raising key rates by 150 and 200 basis points respectively since mid-March to anchor inflationary expectations.
Prime Minister Manmohan Singh’s government, which is facing parliamentary deadlock over a corruption scandal where telecom licences are alleged to have been granted too cheaply -- is under pressure to rein in inflation while keeping the economy on a high growth trajectory.
The government, which is hopeful of achieving growth of at least 8.5% this fiscal year to end-March, expects headline inflation to ease to around 6% by end-March thanks to easing food prices and monetary policy tightening.
India’s annual headline inflation eased to 8.58% in October to its lowest level in 10 months, while food inflation eased for a sixth consecutive week in mid-November.
The RBI’s next monetary policy review is on 16 December. Analysts polled by Reuters expect the central bank to raise rates by an additional 25 basis points by the end of March.