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Indian GDP Growth Accelerates to 8.1%, Tops Forecasts (Update5)
Sept. 30 (Bloomberg) -- India's economy expanded at the fastest pace in more than a year in the first quarter, as companies increased production to feed a consumer boom and meet rising overseas demand.
Gross domestic product in Asia's fourth-largest economy expanded 8.1 percent in the three months ended June 30 from a year earlier, the Central Statistical Organisation said in New Delhi today. The expansion, led by an 11.3 percent gain in manufacturing, was the fastest in five quarters and beat the estimates of all nine economists surveyed by Bloomberg.
Borrowing costs close to three-decade lows and higher wages encouraged more consumers to buy cars, houses and goods in the world's second-fastest-growing major economy behind China. Rising sales of products such as Mahindra & Mahindra Ltd.'s Scorpio and Bolero sport-utility vehicles helped lift the benchmark Sensitive stock index about 30 percent this year.
``A lot of companies are expanding capacity to meet rising demand,'' said Shuchita Mehta, an economist at Standard Chartered Bank in Mumbai. ``We see the current growth momentum'' continuing for the rest of the financial year ending March 31.
India is on track this year to overtake Asia's third-biggest economy, South Korea, which posted a 3.3 percent expansion in the three months ended June 30. Japan's economy, the world's second biggest, expanded 2.1 percent in the same period, while China's gained 9.5 percent.
The Indian government is targeting more than 7 percent annual growth for the next decade.
Monsoon, Farmers
The government on Sept. 16 said output of food grains sown in the monsoon season may rise 2 percent because normal rains allowed farmers to cultivate more land. Agricultural production rose 2 percent in the first quarter.
Farm production needs to be boosted through investment, the finance minister said today.
``We see rising demand in the coming years,' said Gautam Thapar, vice chairman and managing director at Ballarpur Industries Ltd., India's biggest maker of writing and printing paper, which on Sept. 28 said it plans to double its capacity to 1.2 million metric tons by 2010.
Exports, which account for about a 10th of the economy, rose 23 percent from a year ago in the five months ended August following a 24 percent gain in the year ended March 31. Mahindra & Mahindra shipped more vehicles to Europe, while companies including Tata Steel Ltd. increased sales to China.
``Trade is rising and is holding very strong,'' said S. Hajara, chairman and managing director of Shipping Corp. of India Ltd., the nation's biggest shipping company, which yesterday got government approval to buy two very large crude oil carriers for $258 million.
Inflation Threat
``The only threat to India's economic growth comes from higher inflation,'' said D. H. Pai Panandiker, director general at RPG Foundation, an economic policy group in New Delhi. ``Inflation will likely accelerate and the central bank may be forced to raise interest rates by a quarter point next month.''
Prime Minister Manmohan Singh's government partially passed on higher global crude oil costs to consumers by approving a 7 percent increase in automobile fuel prices on Sept. 6, the first since June. Crude costs have risen 34 percent in the past year.
The Reserve Bank of India in its July 26 monetary policy statement left its overnight borrowing rate unchanged at 5 percent, saying inflation probably won't exceed its target of 5.5 percent in the year to March 31. Since last October, the overnight reverse repurchase rate has been the central bank's main policy tool because commercial lenders have surplus cash.