UPDATE: India April-June GDP +6.1% On Yr, Monsoon A Worry
By Abhrajit Gangopadhyay, Mukesh Jagota & Neelabh Chaturvedi
Of DOW JONES NEWSWIRES
NEW DELHI (Dow Jones)--India's economy expanded 6.1% in April-June from the year-earlier quarter, gathering momentum on public spending and interest rate cuts but a spreading drought could weigh on the nascent rebound in months ahead.
The increase in economic output was driven by trade, hotel and transportation services, as well as mining and manufacturing. It followed a rise of 5.8% in the January-March period, the Central Statistical Organization said Monday.
The data were in line with expectations. A median forecast in a Dow Jones Newswires poll had pointed to a 6.1% expansion in the fiscal first quarter. Government bonds and local stocks were little changed on the news.
The data show Asia's third largest economy is emerging from the global slump in better shape than many of its regional peers.
India has maintained relatively fast growth this year despite steep downturns elsewhere, as exports play a relatively small role in the rural-demand driven economy. The government has also ramped up spending - increasing its debt burden - to spur activity.
Other Asian economies bounced strongly in April-June from deep contractions early in the year, but many were still below year-earlier levels of output. Malaysia's economy, for example, shrank 3.9% on year, narrowing a 6.2% drop in the first three months of 2009 on rising exports to China, whose reviving economy has been a locomotive for the region's recovery.
Indian government officials said economic growth, which sagged following the recent global financial crisis, would pick up in coming quarters, buoyed by increased output in manufacturing and services sectors.
Finance Secretary Ashok Chawla predicted economic growth will exceed 6.5% this fiscal year although he said it is difficult now to assess the impact of delayed rainfall on India's agriculture-dependent economy.
The Reserve Bank of India expects the economy to expand 6% with an "upward bias" while the federal government has forecast growth between 6.25%-7.75%.
"There are sure signs that the movement to the higher trajectory is well on course," Chawla told reporters after the GDP data release.
But analysts say the poor start to June-September monsoon season has clouded India's near-term economic outlook. Over a third of India's 625 administered districts have declared drought, and analysts warn weak rains will likely crimp output of summer sown crops and squeeze rural incomes, depressing demand for everything from motorcycles to cellphones.
"India will find it difficult to sustain on-year GDP growth of over 6% in the remaining three quarters of the current fiscal year in view of the monsoon setback," said Rupa Rege Nitsure, chief economist at Bank of Baroda.
Morgan Stanley economist Chetan Ahya estimates farm sector output may contract between 2% and 4% this fiscal year, which will result the full-year economic growth to range between 5.8% and 5.2%.
The government is trying to support the agriculture sector by increasing the minimum selling price of rice and sugar. It has also offered to subsidize diesel for farmers to bring down irrigation costs, and provided additional electricity to key farming provinces such as Punjab and Haryana.
Rates Likely Stable For Now
Analysts said the GDP numbers would unlikely prompt any shift in the central bank's neutral policy stance, with signs of improvement in the economy offset by the need to keep rates low to help the bond market absorb the glut of public debt as well as concerns over damage from the monsoon.
Government borrowing of INR4.51 trillion for this fiscal year - up from INR3.06 trillion last fiscal year - has put upward pressure on market interest rates, lifting borrowing costs for companies and consumers despite a series of rate cuts by the Reserve Bank of India since October.
"RBI's policy response will focus more on managing the government's borrowing program. I expect an extended pause on interest rates," Nitsure said.
Growth last financial year ended March 31 slowed to 6.7% from 9.0% the previous year, missing a government forecast for a 7.1% expansion.