Q1 GDP growth beats expectations at 9.3%

Surges despite higher interest rates, inflation.

The economy weathered interest rate shocks and higher inflation to grow a robust 9.3 per cent in the first quarter ended June 30 of the current financial year (2007-08), prompting Finance Minister P Chidambaram to predict full-year growth at 9 per cent and analysts to similarly raise forecasts.

"Although growth is marginally lower than the 9.6 per cent growth in first quarter of 2006-07, the latest results are very satisfactory," the finance minister said.

First-quarter growth has been fuelled mainly by electricity generation and agriculture due to a good monsoon.

"The high growth in GDP is due to the continuing momentum in economic activities. Industry and services have more or less maintained their momentum, though industry is expected to slow down in the coming days," said Subir Gokarn, chief economist of rating agency Standard & Poor's Asia Pacific.

Crisil is expected to raise its full-year forecast from a 7.9-8.4 per cent range next month. US investment bank JP Morgan said it was also likely to raise full-year growth forecast to around 8.6 per cent from 8 per cent.

"Strong domestic demand continued to be the key driver of growth. Private consumption increased, while fixed capital formation sizzled," said Rajiv Malik, senior economist of JPMorgan.

This fiscal's Q1 growth is the second-fastest Q1 growth since 2000-01, the fastest being Q1 of 2006-07 at 9.6 per cent.

Separately released data today, showed that weekly wholesale price index-based inflation dropped to a 15-month low of 3.9 per cent for the week ended August 18, well below the central bank's medium projection of 5 per cent for the current year.

Inflation has been a major concern this year after GDP grew 9.4 per cent in 2006-07, its fastest clip since 1989, fuelling inflation which touched a high of 6 per cent mid-January and prompting the central bank to tighten money supply in an attempt to cool demand.

The Reserve Bank raised its short-term lending rates to banks five times between June 2006 and March 2007, causing banks to raise interest rates across the board.

"In the last few months there has been tightening of monetary policy and credit. Nevertheless, investment remains robust and it is that buoyancy in investment that is driving growth," Chidambaram said.

Net new investment that went into the creation of fixed capital assets rose 1.7 percentage points during the first quarter to 29.6 per cent of GDP against 27.9 per cent in the same period last year.