Manufacturing leads India's Q1 8.8 percent growth

New Delhi (IANS)- The Indian economy grew at a faster rate of 8.8 percent in the first quarter of this fiscal as strong domestic demand resulted in a spurt of manufacturing activity, official data released Tuesday showed.

The country's gross domestic product (GDP) had risen 6 percent in the year-ago period. During the previous quarter (January-March), the economy had expanded by 8.6 percent.

During the three months under review, the manufacturing sector grew 12.4 percent, trade, hotels, transport and communication activities rose 12.2 percent, mining and quarrying 8.9 percent, according to a statement by the Central Statistics Office.

Agriculture, forestry and fishing grew 2.8 percent over the previous comparable quarter.

Private consumption was estimated to be around Rs.996,630 crore in April-June quarter as against Rs.788,013 crore in the first quarter of 2009-10 at current prices.

"The growth rate is expected to soften in the coming quarters partly reflecting a higher base from the last fiscal and partly due to the lagged effect of the interest rate increase initiated by the Reserve Bank of India (RBI) in its last policy statement trickling down to the real sectors of the economy," said Shanto Ghosh, principal economist, Deloitte India.

During the quarter, the wholesale price index (WPI) -- the barometer index for measuring price change -- rose 10.6 percent over the same quarter last financial year, with food articles getting costlier by 16.6 percent, manufactured products by 7.1 percent and electricity by 7.7 percent.

The high inflation levels have already forced the Rserve Bank of India to increase key policy rates four times in 2010.

The government has predicted the economy to expand 8.5 percent in the current fiscal, faster than an annual growth of 7.4 percent in 2009-10.

"The GDP growth of 8.8 percent in the first quarter of current fiscal is on expected lines but we foresee pressures building, since manufacturing has not been doing too good off late," said Swati Piramal, president, Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The economy will also have to depend on domestic demand, as exports to India's traditional offshore markets of Europe and US would taper off with the weakening of the economic recovery there.

"The slowdown in exports arising from the continued nervousness about the recovery in the rest of the world will also pull down the strong growth momentum for the future quarters, although marginally," Ghosh added.

India's merchandise exports increased 13.2 percent in July, the slowest pace in six months, in a sign of the effect of world economic slowing.

Reacting to the growth figures, industry bodies expressed confidence that the momentum would be enough to touch the 9 percent figure for 2010-11.

"Given the trend in GDP growth, we expect to close the year with an overall performance of close to 9 percent", said Rajan Bharti Mittal, President, Federation of Indian Chambers of Commerce and Industry.