India's Economy Grows at Fastest Pace in a Year in April-June Quarter

INDIA - NEW DELHI. India's economy grew at its quickest pace in a year in the April-June quarter, buoyed by strong services activity and robust demand, but a drier than normal monsoon season could restrain future growth.

Gross domestic product (GDP) expanded 7.8% on an annual basis in the second quarter of 2023, accelerating from 6.1% growth recorded in the first quarter and topping a 7.7% forecast in a Reuters poll.

It was also the highest reading since the equivalent period of 2022, when growth stood at 13.1%.

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India remains one of the fastest growing major economies, especially as China's post-pandemic recovery has slowed.

"The GDP data for Q2 (Q1 of FY23/24) confirm a resilient first half of the year for India’s economy in the face of the RBI’s policy tightening," said Thamashi De Silva of Capital Economics.

The Reserve Bank of India has raised its interest rate by 250 basis points since May 2022.

"The push is provided by the services sector where both trade, transport and finance and real estate have grown by 9.2% and 12.1% in high base growth rates," said Madan Sabnavis, economist at Bank of Baroda.

Construction activity growth was also strong at 7.9%.

But most economists warned that dry conditions could hurt growth in the coming quarters.

India is likely to receive an average amount of rainfall in September, after the driest August in more than a century.

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"Going forward, we need to watch for risks to the agriculture sector, sustenance of capex push from central and state governments, global demand conditions, and lagged impact of interest rate hikes," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

In the April-June quarter, private consumption, which accounts for nearly 60% of the economy, grew about 6% year-on-year, up from 2.8% in the March quarter, while manufacturing expanded 4.7%, compared with 4.5% in the previous three months.

However, growth in capital formation, an indicator of investment, eased to about 8% year on year from 8.9% in the previous three months.