Indian economy set to grow fastest in a year

At a time when several European countries were facing recession and inflationary pressure owing largely to the ongoing Russia-Ukraine war, the Indian Economy is set to grow fastest in a year, according to a report.

Sources said that the growth of the Indian economy, which grew fastest in April-June this year, was the result of growth in services and manufacturing. The experts have, however, warned that a slowdown could be expected in the very near future.

According to the median forecast, India's gross domestic product (GDP) grew 7.7% in the past quarter, up from 6.1% growth in the previous quarter and its fastest expansion since April-June 2022.

Economists say lower commodity prices helped manufacturers increase margins and offset the impact of 250 basis points of cumulative interest rate increases since May 2022.

Strong growth in India's services sector, which makes up more than half of its economic output, has helped Asia's third-largest economy buck the global slowdown that has left many major economies, including China, stuttering.

S&P Global India services Purchasing Managers' Index has remained firmly above the 50-mark separating growth from contraction for nearly two years, the longest stretch since August 2011.

To support growth, the central government has been front-loading its annual spending on infrastructure. In the first three months of the fiscal year that started on April 1, India had spent nearly 28% of its capital expenditure budget of 10 trillion Indian rupees ($120.91 billion).

Economists say that price effect could reverse in coming months, and growth could cool off.

After above-average rainfall in July, August has been uncharacteristically arid, which pushed up prices of food staples, curtailing discretionary spending. A prolonged dry spell in many parts of the country could also hit agriculture output and eat into power of the population in India's hinterlands where a majority depend on agricultural income.

Additionally, slowing global growth and exports and a comparison with higher growth rates a year ago will also weigh on growth in the quarters ahead.