India's GDP grows 8.6% in Q4 on factory output

India's economy grew 7.4 per cent in the year ended March, official data showed yesterday, but analysts said uncertainty in the global outlook meant the government was in no rush to raise interest rates.

The strong growth data, which also showed 8.6 percent year on year growth in the fourth quarter, was boosted by stellar performances in the industrial and service sectors and comes as inflation is running at almost 10 per cent.

However, concern over the euro zone debt crisis and the hopes for the coming monsoon are likely to dissuade the Reserve Bank of India (RBI) from hiking the cost of borrowing, experts said.

"We expect no upward revision in rates at the next meeting," said Ritika Mankar, economist with financial services firm Executive Noble, after the central bank last week announced fresh measures to boost liquidity.

Data released yesterday by the Central Statistical Organisation (CSO) showed the manufacturing sector grew 10.8 per cent in the year and the construction and utilities sectors by 6.5 per cent each.

The transport and communications sector saw 9.3 per cent growth. The country has recorded seven straight months of double-digit expansion in industrial output.

In the vital farm sector, the CSO said the Ministry of Agriculture had revised upwards its crop production estimates for key commodities such as rice, wheat, cotton and sugarcane.

The data showed agricultural growth at 0.2 per cent for the full year against official estimates of negative 0.2 per cent.

Agriculture accounts for 15 per cent of India's gross domestic product and though its share is falling, the sector's health is vital to the economy as some 60 per cent of India's 1.1 billion people rely on it for a living. Another factor influencing any RBI policy decision will be the onset of the monsoon rains that sweep the country from June to September. If strong, the rains will bring down food prices.

Last year's monsoon, the weakest in nearly four decades, hit agriculture output, sent the cost of food soaring and caused widespread hardship.

Reacting to the data yesterday, Indian Finance Minister Pranab Mukherjee told reporters: "I expect the current economic momentum to remain." He said he expected the economy to grow 8.5 per cent in the fiscal year to March 2011.

Emerging Nations vital

European Central Bank President Jean-Claude Trichet said emerging nations have weathered the global recession better than advanced countries.

Federal Reserve Chairman Ben S Bernanke also said in prepared remarks to a Bank of Korea conference in Seoul yesterday that "as emerging market economies become increasingly important in the global trading and financial systems, the world economy will depend even more on them to maintain strong domestic growth and financial stability".

The International Monetary Fund said last month that emerging economies, including Brazil and Russia, will expand 6.3 per cent this year, nearly triple the pace of growth in advanced nations. Europe this month had to save its single currency with a $1 trillion (Dh3.6trn) rescue package after Greece's debt crisis threatened to spread.

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