India’s economy set for more strong growth, say analysts

India looks set for another year of strong growth after the economy unexpectedly accelerated by a scorching 9.3% during the first three months, analysts say.Last Friday’s first-quarter data, driven by robust manufacturing and services output, surprised many analysts who had forecast growth as low as 8.5% after five interest rate hikes in a year.The aggressive monetary tightening and a stronger rupee, which has hit exports, means it is unlikely India will repeat last year’s torrid 9.4% expansion, the fastest in 18 years, analysts say.But India’s “growth story,” which has prompted foreigners to pump billions of dollars into shares, infrastructure and other investments, remains intact.Expansion is being “consumption led” with “rising incomes and a growing middle class” in the country of 1.1bn people, said Deepak Lalwani, director at London investment house Astaire and Partners.“The economy has gained its own strong momentum due to cumulative reforms,” said Lalwani, who sees growth of 8.5-9% in the fiscal year to March 2008.Agriculture, which has pulled down the broader economy, also fared better than expected during the first quarter, posting 3.8% growth.While 9% is at the upper end range of most full-year forecasts, economists have raised their expectations following the quarterly figures.JP Morgan boosted its growth estimate from eight to 8.6% and Morgan Stanley from 7.7% to 7.8%. India’s HDFC bank said it was looking at “8.5% plus” from an earlier 8.3%. Other investment houses said they were considering hiking their forecasts.Finance Minister P Chidambaram said he was “confident GDP growth will remain close to 9% this year” even though first-quarter growth was “a shade below” the 9.6% expansion logged in the year-ago period.India’s economy, which has expanded by an average annual 8.6% in the past three years, is the fastest growing after neighbouring China. China’s economy expanded by a roaring 11.9% in the second quarter.Analysts say India’s growth would cool in coming quarters as the central bank’s tight money policy, which has pushed interest rates to five-year highs, crimps capacity expansion and hurts credit growth.Sales of cars are already slowing due to higher loan costs and spending on consumer durables has fallen.“There is some softness already in credit growth and rail freight and exports,” said Abheek Barua, chief economist at HDFC Bank.But the central bank is unlikely to ease its hawkish monetary policy stance rapidly.Data on Friday showed inflation fell to below four% for the first time in over 15 months to 3.96% but the strong first-quarter growth means that fears of overheating are still alive, analysts said.“It does not seem likely the central bank will loosen rates in a hurry... (as) the economy continues to grow at an above trend pace,” said Manika Premsingh at Edelweiss Capital brokerage.The new inflation rate is far below the bank’s annual target of “close” to five%. But economists say the drop was mainly due to a high base effect from a year earlier when inflation stood at 5.6%.“The bank won’t be lulled,” said Soumitra Chaudhuri, economic advisor to credit rating agency ICRA.“Inflation isn’t dead, the economy is growing fast, and if you don’t watch inflation it will come back with a vengeance