India’s economy grows by 7.4 percent in second quarter, outperforming China

“China was the leader of economic growth across the globe for two decades or so until 2014 but India will now be the pace-setter for the next two to three years at least”, said analyst Sujan Hajra.

India’s economic growth accelerated to 7.4 per cent in the July-September quarter, overtaking China as the world’s fastest growing major economy, on pick up in manufacturing, mining and services sectors. Though GVA growth has moved up from 7.1% in the first quarter of the current year to 7.4% in the second quarter the overall growth in GVA in the first half of the current year has slipped down to 7.2% from a much higher 7.9% in the first half of the previous year 2014-15.

Stronger growth would be a boost for Prime Minister Narendra Modi after a defeat in state elections in India’s third-most populous state of Bihar. The numbers show that growth of private consumption has steadily slipped by more than a percentage point over the last three quarters to touch 6.8%.

Data came as the Reserve Bank of India is set to announce its policy decision on Tuesday.

The Indian economy grew 7.4 percent in the second quarter ended September, showing some improvement over the 7 percent expansion in the quarter before but a notch lower than the 8.4 percent registered in the same quarter of the last fiscal.

Investors are hoping Modi’s government will be able to reach a consensus with opposition parties and push reforms through the current session of parliament, including one that paves the way for a long-awaited national sales tax. However in the services sector the GVA growth rate has slipped marginally from 8.9% to 8.8%. Growth is mostly driven by public spending than private consumption.

A drought in parts of the country for the second straight year has hurt farm output and rural wages – hitting demand for farm machinery like tractors as well as consumer goods. The data released by CSO today showed that manufacturing sector grew 9.3% in July-September as against 7.9% in the year-ago period.

A hike of over 23 percent in the incomes of near 10 million government employees and pensioners from January could further boost consumer spending.

Other barometers such as bank credit growth, jobs and consumer demand paint a less healthy picture, analysts say.

India is seen as a bright spot given the contraction witnessed in some of the other emerging market economies such as Brazil and Russian Federation, while China has seen a slowdown in recent months. The government expects the economy to grow at over 8%, although economists see a 7.5% expansion to be more feasible.