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India’s economy beats estimates to grow at 7.2% in third quarter of 2018

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The growth in the overall economy was thanks to an uptick in agriculture, construction activity and manufacturing.

New Delhi: India’s economy beat estimates to expand at the rate of 7.2 percent for the December quarter GDP helped by agriculture, manufacturing and construction sectors, against 7 percent for the same period last year.

The GDP forecast for FY18 has been raised to 6.6 percent from 6.5 per cent, but lower than 7.1 per cent recorded for 2016-17.

According to analysts polled by Reuters, third-quarter GDP was forecast to grow at 6.9 per cent. For the second quarter, GDP stood at 6.3 per cent, following five consecutive quarters of slowdown.

Agricultural growth at 4.1 per cent was up against 2.7 per cent in the previous quarter.

Construction activity expanded at 6.8 per cent in the third quarter from 2.8 per cent in the previous quarter.  Construction activity took off aided by government expenditure.

GVA, a measure of value of goods and services produced, stood at 6.7 per cent against 6.2 per cent in the previous quarter. Brokerage Nirmal Bang had forecast GVA growth for FY18 at 6.5 per cent.

However, the current growth still trails the almost double-digit growth seen before the 2008 financial crisis.

Strong economic growth stumbled after the government’s 2016 demonetisation of high value currency. The mid-2017 rollout of the Goods and Services Tax did not help matters. Increased spending has also raised fears of the government overshooting its fiscal target.

Manufacturing Activity Slows in February

Factory output grew at a rate of 8.1 per cent against 6.9 per cent in the previous quarter, according to the CSO.

Separately, activity in the manufacturing sector grew for the seventh consecutive month in February, albeit at a slower rate, according to data released by IHS Markit Wednesday.

The Nikkei manufacturing Purchasing Managers’ Index, or PMI, dropped to 52.1 in February from 52.4 in January. Any reading above 50 indicates growth. The overall upturn was driven by increasing output and new orders.

“Cost inflation accelerated to the sharpest since February 2017, adding to expectations that inflationary risks will continue over the coming months,” said, Aashna Dodhia, Economist at IHS Markit.

Nascent Recovery

The Reserve Bank of India earlier this month left interest rates untouched, saying the “nascent recovery” needs to be carefully nurtured. The central bank also stressed on the need to push growth through stable financial management.

The Monetary Policy Committee kept the short-term lending rate at 6 per cent, at a seven-year low, during the policy review.

The central bank noted that the economic recovery is on a stable path, but said upside risks to inflation persist.

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