New Delhi: India's economic growth accelerated more than economists estimated after the central bank refrained from raising interest rates.
The country's Gross domestic product (GDP) rose 5.7 per cent in the three months ended June from a year earlier, compared with 4.6 per cent in the previous quarter, the Central Statistical Office said in a statement in New Delhi on Friday.
The median of 48 estimates in a Bloomberg News survey was for a 5.5 per cent gain.
Prime Minister Narendra Modi is banking on stronger growth to narrow the budget deficit to a seven-year low, after keeping subsidies largely unchanged. He faces the challenge of rejuvenating Asia's third-largest economy amid the risk that a weak monsoon will hurt crops and stoke the region's fastest inflation.
"This is the beginning of a recovery, but for sustained growth, we will have to see if the agricultural drag will be offset by a revival in manufacturing," Shubhada Rao, an economist at Yes Bank in Mumbai, said before the data.
The S&P BSE Sensex index gained 0.3 per cent in Mumbai on Thursday, the rupee weakened 0.1 per cent to 60.5150 per dollar and the yield on the 10-year sovereign bond was little changed at 8.56 per cent. Indian markets are shut on Friday for a local holiday.
The currency has pared this year's gains after Finance Minister Arun Jaitley refrained from cutting subsidies and expenditure in his first budget. He's instead banking on a boost in tax revenues to bridge the fiscal shortfall.
Since taking office with the strongest electoral mandate in 30 years, Modi has blocked a breakthrough deal at the World Trade Organisation (WTO), refrained from allowing foreign companies to take majority stakes in the defence sector and retained a retroactive tax law that has entangled Vodafone Group in a $2.4 billion dispute.
During a parliament session that ended this month, opposition lawmakers scuppered Modi's attempt to revive a bill proposing more foreign investment in insurance. The setback robs Modi of an opportunity to lure investors during a planned visit to the US next month.
The government will need to take steps to mobilise tax revenues and impose strict fiscal discipline to achieve its goal of narrowing the budget deficit to 4.1 per cent of GDP from 4.5 per cent a year earlier, the Reserve Bank of India said on August 21. Risks to a growth forecast of 5.5 per cent in the year through March 2015 are broadly balanced now after being to the downside at the start of the period, it said.
Governor Raghuram Rajan left the benchmark repurchase rate at eight per cent for a third straight meeting and on August 5 flagged upside risks to the RBI's target of lowering inflation to six per cent by January 2016, citing the government's price support for crops, deficient rainfall and oil prices amid global conflicts.
Consumer prices rose 7.96 per cent in July from a year earlier, the fastest pace since May, government data show. India's monsoon rainfall has been 18 per cent below normal since June 1, the weather department said on August 27, heading for the driest year since 2009.