India’s economy grew at 7.9% in the January-March quarter, the highest in six , cementing its position as the world’s fastest growing major economy, although plentiful rains this summer and a pick-up in private investments will be critical for the momentum to remain.
The latest data comes a week before Prime Minister Narendra Modi’s visit to the US where he will hard sell India’s impressive growth record in the last two years in meetings with top US CEOs.
India also outpaced China’s 6.7% growth during the same period, as the rival Asian titan struggles to claw out of a sharp deceleration.
The country’s “real” or inflation-adjusted gross domestic product (GDP)—a measure of the value of all goods and services produced in the country—grew at 7.2% during October to December from 7.6% in the previous three months.
For the full year 2015-16, India’s real GDP grew 7.6%, the fastest in five years, aided by low commodity and oil prices.
Analysts, however, said the overall economy’s expansion pace could be masking a massive fall in exports and the still-fragile recovery in private investment.
“While headline GDP growth recorded an uptick, the key disappointment was the step-down in investment growth,” said Aditi Nayar, senior economist, ICRA Limited, a credit rate and research firm.
Gross Fixed Capital Formation (GFCF), a marker for new capacity additions by firms, grew at 3.9% in 2015-16 from 4.9% in 2014-15, mirroring subdued private and government investment activity.
“The contraction of GFCF by 1.9% in January to March is disappointing, highlighting the muted trend in private sector investments as well as some slowdown in the pace of growth of the government’s capital expenditure in the final quarter of the last fiscal,” Nayar said.
The farm sector, hit by two years of successive drought, appears to have rebounded, growing 2.3% in January to March from a 1% contraction in the previous quarter. The weather office sees “above normal” monsoon rains coming this year.
This year’s monsoon rains are critical for prospects of the broader economy, which is still smarting under the effects of two years of back-to-back drought.
Mining and electricity, also showed a strong pick rekindling hopes of a broader industrial revival.