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India GDP Growth Accelerates From 4-year Low

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India's economic growth recovered from a 4-year low in the three months to September, helped mainly by strong improvement in agriculture and construction.

Despite the better-than-expected growth, analysts continue to expect the Reserve Bank of India to retain its hawkish stance, given the high inflation.

Gross domestic product increased 4.8 percent year-on-year, data released by the Central Statistics Office showed Friday, following the 4.4 percent growth in the June quarter, which saw the slowest growth in four years.

Economists had forecast a 4.6 percent expansion for the July to September period. The economy logged below-5 percent growth for the fourth successive quarter.

Farm output, which includes agriculture, forestry and fishing, grew a robust 4.6 percent, following the 2.7 percent increase in the previous quarter.

Manufacturing output recovered in the September quarter, with a tepid 1 percent growth following a 1.2 percent decline in the previous three months. Construction output increased 4.3 percent.

Output continued to shrink in the mining and quarrying, with production falling 0.4 percent in the latest quarter, which was less worse than the 2.8 percent slump in the previous three-month period.

Meanwhile, the service sector sustained the strong performance, with the output from the financing, insurance, real estate and business services group rising 10 percent.

In October, the RBI cut its growth forecast for fiscal 2014 to 5 percent from 5.5 percent. At the same time, the International Monetary Fund cut its 2013 growth forecast for India to 3.8 percent from 5.6 percent.

Capital Economics sees the Indian road to recovery as slow and bumpy. "High consumer and wholesale price inflation will keep household and corporate budgets under pressure," the research group's Asia economist Miguel Chanco said.

"In addition, the central bank's hawkish posture means that monetary policy will not provide support anytime soon."

Late October, the RBI lifted interest rates for a second straight month as Governor Raghuram Rajan stepped up the fight against high inflation. The bank also rolled back some liquidity tightening measures. The same month, the wholesale price inflation accelerated to an 8-month high.

On November 7, Standard & Poor's affirmed the investment grade rating of India, but warned that it will downgrade its ratings if the government that takes office after the general election does not appear capable of reversing low economic growth. The country faces parliament elections by May next year.

Widening trade gap and high fiscal and current account deficits as well as a weaker rupee are also worrying Indian policymakers. This year, the government imposed curbs on gold imports, a major contributor to total imports, by raising customs duties several times.

"The expenditure-side data are not consistent with the headline GDP figures, but they point to a pick-up in investment and exports last quarter alongside continued weakness in consumption," Capital Economics' Miguel Chanco said.

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