New Delhi: India’s economy is expected to grow at 8.6% in the fiscal year that ends in March, the government said on Monday, powered by expansion in the services sector and roughly in line with market forecasts.
Last week, Prime Minister Manmohan Singh said high inflation was a serious risk to growth momentum, underscoring the worries of policymakers about headline inflation above 8.4%.
A Reuters poll last month forecast India’s economy would grow 8.7% in the current fiscal year and 8.5% in the year that ends March 2012.
Expected GDP growth this fiscal year will be helped by a rebound in agriculture, which is expected to grow at 5.4% on good monsoon rains after expanding by just 0.2% a year earlier following one of India’s worst droughts in decades.
The full-year outlook implies a slowdown in fiscal fourth quarter growth to about 8% year-on-year, a four-quarter low, according to Dariusz Kowalczyk, an analyst at Credit Agricole-CIB in Hong Kong.
The expected January-March quarter moderation “would provide hope for slowdown in demand-pulled price pressures,” Kowalczyk said in a note.
Bond yields, swap rates and the rupee were little changed after the release of the data on Monday.
The strong growth in agriculture is expected despite recent supply shortages in vegetables, such as onions and potatoes, which have led to high food inflation spilling over to the broader economy.
The Reserve Bank of India (RBI), has raised rates seven times since March, although monetary policy is expected to have only a limited impact on reining in supply-side driven food inflation.
Rising interest rates, meanwhile, have taken a toll on manufacturing, which is expected to grow only 8.8% in the current fiscal year, dipping from nearly 11% growth a year earlier.
“You have to look at manufacturing, which at 8.8% is beginning to show capacity constraints and price pressures, which could be a drag on growth going forward,” said N. Bhanumurthy, senior economist with the National Institute of Public Finance and Policy.
The manufacturing sector grew at 13% in the June quarter and nearly 10% in the September quarter, thanks to robust domestic demand, as India came out of the global financial crisis much faster than many other economies around the world.
Core sectors in industry like mining and construction, which tend to reflect the health of the overall economy, are expected to grow at 6.2% in the current fiscal year.
Industrial growth slumped to an 18-month low in November to 2.7% but PMI data in India showed manufacturing grew at a slightly faster pace in January.
India is the second fastest growing major economy in the world after China, although both countries are battling inflation.