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India Posts World-Beating Growth to Shrug Off Trade War Fears

India Shrugs Off Trade Wars With World-Beating 8.2% Growth

(Bloomberg) -- India’s economy expanded at the fastest pace in nine quarters, as strong domestic consumption and robust manufacturing growth overwhelmed any global trade-war worries.

Gross domestic product grew 8.2 percent in the three months ended June, from a year earlier, the Statistics Ministry said in a statement in New Delhi on Friday. That was faster than the 7.6 percent median estimate in a Bloomberg survey of 42 economists. Only one economist, Saugata Bhattacharya of Axis Bank Ltd., accurately predicted the pace.

Reforms and fiscal prudence are serving the economy well and this growth in an environment of global turmoil represents the potential of India, Finance Minister Arun Jaitley said in posts on Twitter.

The economy is expected to expand more than 7.5 percent in the fiscal year to March 2019, Subhash Chandra Garg, economic affairs secretary in the finance ministry, said in New Delhi, adding that growth was now on a steady track.

India grew by a sub-par 6.6 percent in fiscal 2018, provisional estimates showed, as demand was weakened by the lingering effects of a cash ban in 2016 and the chaotic introduction of a consumption tax.

Key Details

  • Gross value added -- a key input of GDP that strips out taxes -- rose 8 percent in April-June versus 7.5 percent survey estimate
  • Agriculture expanded 5.3 percent, manufacturing rose 13.5 percent
India Posts World-Beating Growth to Shrug Off Trade War Fears

The numbers cement India’s position as the world’s fastest-growing major economy, outpacing China -- where an intensifying trade conflict with the U.S. has dimmed the outlook. The South Asian economy may receive a further boost from an anticipated increase in government spending in coming months, as Prime Minister Narendra Modi tries to boost his party’s prospects for the general election due in 2019.

There are risks for the economy looming. They include higher oil prices, tightening global financial conditions and a shortfall in taxes that could put budget targets out of reach. The rupee’s slump on Friday to a record below 71 per dollar could deter foreign investors, fan imported inflation and prompt intervention from the central bank -- all of which carry implications for growth.

“While the worst appears to be behind us, there could be some headwinds to growth going forward,” said Indranil Pan, chief economist at Mumbai-based IDFC Bank Ltd. Higher interest rates, banking sector stress, and the likelihood that trade wars will weaken the global economy’s momentum are among the concerns he cited.

For now, the International Monetary Fund is forecasting Asia’s third-biggest economy will grow 7.3 percent in the fiscal year through March 2019 and 7.5 percent in the next. The Reserve Bank of India, which has increased interest rates twice since June to curb inflation, expects the economy to expand 7.4 percent in fiscal 2019.

What Our Economists Say.....
The key takeaway -- pick-up in growth, sans demand pull inflationary pressure in the economy, supports Bloomberg Economics’ thesis that reforms have lifted India’s potential growth and the recovery ahead is likely to remain non-inflationary.

--Abhishek Gupta, Bloomberg Economics

--With assistance from Manish Modi, Anirban Nag, Nupur Acharya and Kartik Goyal.

To contact the reporter on this story: Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, ;Stanley James at sjames8@bloomberg.net, Karthikeyan Sundaram, Garfield Reynolds

©2018 Bloomberg L.P.