Hope rises as GDP grows at 7.4% in second quarter

NEW DELHI: India’s economy grew at 7.4 % in July-September, quicker than the previous quarter’s 7% further cementing its status as the world’s fastest growing major economy outpacing China, figures released Monday showed.

The growth is likely to pick up further in the coming months riding on festive season buying and higher salaries that government employees are expecting from January 1, 2016 in tune with the seventh pay panel recommendations.

The latest national income data came on the eve of the Reserve Bank of India monetary policy review. RBI is widely expected to hold interest rates as it has cut key lending rate — the repo rate — by 1.25 percentage points in four tranches since January.

China, which is slowing down, reported an annual growth of 6.9% for the three months ended September 30.

The government has announced a string of measures to engineer a quick turnaround of Asia’s third largest economy through initiatives such as Make in India. It recently eased foreign direct investment norms for 15 sectors, including defence, broadcasting, construction and retail trade, suggesting a determined drive to push reforms.

While there are signs of an industrial revival with the manufacturing sector growing at 9.3% in July-September from 7.2% in the previous quarter and 7.9% in the same quarter of last year, a prolonged slowdown in infrastructure and a drought-hit farm sector could hurt the broader growth.

A separate set of data showed that the eight “core” infrastructure sectors slowed to 3.2% in October from a year earlier. These eight industries -- coal, crude oil, natural gas, refineries, fertilisers, steel, cement and electricity – account for nearly 38% of the total industrial output and expanded at 9% in the same month last year.

The national income data also showed that the construction sector, a gauge of infrastructure activity such as highways and ports, grew at a slower 2.6% in July-September compared with 6.9% in the previous quarter and 8.7% in the same quarter of the previous year.

The farm sector, still smarting under two successive droughts, grew at 2.2% compared to 1.9% in the previous quarter, surprising analysts. “The key surprise is the uptick in growth of agriculture belying the concerns regarding the extent of drag generated by the unfavourable monsoon,” said Aditi Nayar, senior economist at ICRA, a credit rating and a research firm.

The government would be hoping that higher salaries from employees from next year will trigger a spending spree and help the economy gather pace.

The pay panel has recommended an average 23.55% increase in emoluments of central government employees, including salaries, perks and pensions, a move that has brightened the prospects of a sharp boost in the earnings of 4.8 million staffers and 5.5 million pensioners.

More cash in hand will likely result in higher consumption by employees, who account for a large segment of the Indian middle-class. More demand could boost the economy through higher spending on assets, such as cars and housing.