India’s 7.7% GDP growth pips China’s

mumbai/new delhi — India’s growth recovery strengthened last quarter but doubts remain over whether it can sustain that pace amid surging oil prices and a rout in emerging markets.

Gross domestic product in the fourth quarter of the fiscal year that ended in March 2018 rose 7.7 per cent led by agriculture and manufacturing, according to a statement on the Ministry of Statistics website. That compares with a median estimate of 7.4 per cent in a Bloomberg survey of 38 economists. While that makes it one of the fastest-expanding major economies, risks are rising because of a currency slump and faster inflation.

To add to that, India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans and fraud scandals have erupted at some regional banks. That’s set to curb lending and limit growth even more, and makes the central bank’s job even more complicated ahead of next week’s policy meeting.

“A sustained rise in oil prices to $100 a barrel could even lead to a re-emergence of some of the external and currency risks that existed pre-2014,” said Priyanka Kishore, head of India and South East Asia economics at Oxford Economics. “The banking sector remains in a fragile state, and such problems have the potential to derail the ongoing growth recovery.”

The economy expanded at 6.7 per cent in the fiscal year through March, the slowest pace since Prime Minister Narendra Modi took power in 2014. Goldman Sachs Group cut its growth projection for the year ending March 2019 to 7.6 per cent from 8 per cent, amid concerns that the banking system’s woes are more widespread. On Wednesday, Moody’s Investors Service cut India’s 2018 GDP growth outlook to 7.3 per cent from 7.5 per cent, citing higher oil prices and tighter financial conditions. New risks have emerged just as the economic disruption caused by a cash ban late in 2016 and the chaotic roll-out of a national sales tax fade.

India has been swept up in the maelstrom that’s hit emerging markets as rising US interest rates and a stronger dollar prompt investors to pull money out of stocks and bonds. The rupee has been the hardest hit in Asia, dropping more than 5 per cent against the dollar this year. For oil-importing India, the combination of a weaker currency and surging oil prices is a threat not only for the current-account deficit, but also inflation.