India's gross domestic product (GDP) grew by 8.9% in the July to September quarter, rekindling the debate on whether the Reserve Bank of India (RBI) will continue with its monetary tightening policy to cool inflation, which has shown signs of easing in recent weeks.
The better-than-expected growth was driven by a robust farm output that grew by 4.4% during the quarter, up from 0.9% in the corresponding period a year ago.
All eyes are now on the RBI which will present the next policy review on December 16.
Industry captains said any further rise in interest rates could adversely affect the growth momentum.
Manufacturing sector has grown by 9.8% during July to September as compared with 13% in previous quarter.
"This performance suggests that we should not tighten monetary policy any further. In fact what is required is greater credit availability and reduction in high interest rates to stimulate the manufacturing, construction, electricity, mining and other core sectors," industry chamber Federation of Indian Chambers of Commerce and Industry (Ficci) said.
Economists expect the RBI to maintain a status quo and not raise rates. "Since growth is above the Reserve Bank of India's forecast, any stickiness in inflation will give the RBI reason to hike rates further. At this stage, however, we expect the status quo on all policy rates to be held until March 2011," said Sonal Varma of Nomura.
{{/usCountry}}Economists expect the RBI to maintain a status quo and not raise rates. "Since growth is above the Reserve Bank of India's forecast, any stickiness in inflation will give the RBI reason to hike rates further. At this stage, however, we expect the status quo on all policy rates to be held until March 2011," said Sonal Varma of Nomura.
{{/usCountry}}The government as well as the Reserve Bank of India (RBI) had earlier estimated the economy to grow by around 8.5% in the current fiscal, up from 7.4% in 2009-10.