NEW DELHI -- India's economic slowdown may have paused, with gross domestic product expanding at a faster clip than expected in the three months to March 31 as higher government spending and a robust performance in services offset a slump in manufacturing.
The stabilization of the economy could mean India's central bank, which has eased monetary policy aggressively since October, will refrain from making further interest rate cuts, said analysts. GDP increased 5.8% in the first quarter of 2009 from the year-earlier period, the Central Statistical Organisation said Friday.
Growth for the previous quarter was revised up to 5.8% from a provisional 5.3%. Economists surveyed by Dow Jones Newswires had expected a median 5.0% expansion in the first quarter. 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.
The data show that Asia's third largest economy has managed to withstand the global downturn better than most of its regional peers which are either mired in recession or expecting feeble growth this year. Malaysia's government, for example, expects its trade-driven economy to contract by between 4% and 5% this year.
Indian stocks and the rupee rose on the GDP news although government bonds fell as analysts said the Reserve Bank of India's rate cuts may now have come to an end. "I think interest rates have bottomed out in India," said A. Prasanna, economist at ICICI Securities Primary Dealership.
"Though growth in the first half of the current financial year is likely to be sub-6%, I expect growth to pick up in the financial second half when it may exceed 7%," he said. India's new Trade Minister Anand Sharma said economic growth will be at least 7% in the current financial year, more than the central bank's estimate of 6%.
He added that the government also plans to take steps to bolster demand in labor intensive sectors such as leather and textiles. "We will be announcing some new measures and incentives in the budget for exports and industries," Mr. Sharma said at a news conference after taking office as the new trade minister.
Local authorities have already taken a number of steps in recent months to revive the economy, including slashing interest rates, lowering factory levies and more than doubling the limit on foreign investment in corporate bonds. Finance Minister Pranab Mukherjee Wednesday said boosting the economy will remain the top priority although the government will aim to contain the fiscal deficit to 5.5% of GDP for the current financial year.
Analysts said there was little need for additional fiscal stimulus although the government could look at specific measures for sectors such as infrastructure. Economic growth in the quarter was led by social spending which rose 12.5% from a year earlier, while financial services and real estate climbed 9.5%.
The farm sector, which provides livelihood to nearly 60% of India's population, grew 2.7% from a year earlier. Construction activity rose 6.8% although the manufacturing sector continued to lag--falling 1.4% from the previous year-- given falling overseas demand. India's exports marked a record fall of 33.3% in March, the sixth straight month of on-year declines.