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India's Economy Grows 7.3% in Past Year

May 29, 2015
The news that Asia's third-largest economy grew by 7.5% in the fourth quarter, overtaking China, is a major boost for Prime Minister Narendra Modi a year after he was elected.

India posted annual growth of 7.3% on Friday, overtaking China in the first three months of 2015, but analysts warned further measures were needed to boost the economy.

The growth rate for the financial year that ended March 31, 2015 came in slightly lower than the 7.4% that the statistics ministry had predicted back in February.

But the news that Asia's third-largest economy grew by 7.5% in the fourth quarter, overtaking China, is a major boost for Prime Minister Narendra Modi a year after he was elected.

India's giant neighbor posted growth of 7.0% for the first three months of 2015.

India's Finance Minister Arun Jaitley said the latest figures suggested the economy was in recovery mode. 

"Manufacturing and services indicate that we have a potential to grow at 8-9% and beyond," the Press Trust of India news agency quoted Jaitley as saying.

"It is absolutely clear that the economy is in a recovery mode."

Friday's figures were the first Gross Domestic Product data to be released since the government introduced a revised formula for calculating GDP that has baffled analysts.

"The real economic momentum is not encouraging," Shubhada Rao, chief economist at YES Bank, told AFP, indicating the Reserve Bank of India was almost certain to reduce interest rates on Tuesday for a third time this year.

"Key sectors like agriculture and construction are slowing down. The GDP number is really being supported largely on the basis of strong tax collections. 

"The government now should move to arrest the slide in economic momentum and support growth. A 25 basis point cut from the RBI is very much on the cards," she added.

Rate Hike Likely

India's central bank has already cut interest rates twice this year by a total of 50 basis points to 7.50%.

Modi's right-wing government, which swept to power in general elections last May on pledges to boost a flagging economy, wants RBI governor Raghuram Rajan to slice more points off the benchmark repo rate, the level at which it lends to commercial banks.

The governor has made controlling inflation a priority and has it well within the RBI's target of 6%.

"With inflation staying soft, the case for the central bank lowering rates by a quarter percentage point is very much the policy prognosis," Dharmakirti Joshi, chief economist with rating agency Crisil, told AFP.

Joshi added that the economic activity on the ground "wasn't matching" the rate of growth, suggesting that analysts remained unconvinced about the new way of calculating the GDP numbers.

India's government changed the way it calculates GDP back in January, with officials saying the new method was closer to international standards.

The main change is that India now measures its economic growth at market prices to incorporate "gross value addition" in goods and services as well as indirect taxes.

The base year to calculate India's GDP has also been advanced to 2011-12 from 2004-05.

But analysts say that the new data does not correlate with some other economic indicators, including last year's industrial production figures and corporate profits.

Copyright Agence France-Presse, 2015

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