India is set to hang onto its status as the world’s fastest growing major economy thanks to stronger consumer demand, if data due out later on Wednesday matches economists expectations for a 7.1 percent year-on-year expansion in the March quarter.
That move pounded consumer demand. But the setback to an economy where most people are paid and buy what they need with cash appears to have been mercifully shortlived.
The injection of new banknotes as well as robust demand generated by the traditional wedding season and people buying fridges and air conditioners to cope with a blistering heatwave have since led a rebound in consumer spending, which fuels more than half of India’s economic growth.
Forecasts ranged from 6.5 to 7.8 percent.
The federal statistics office will release the figures at 1200 GMT.
A stronger growth outturn will support the Reserve Bank of India’s (RBI) forecast of a V-shaped recovery from the cash clampdown. Analysts expect the RBI to keep interest rates on hold at its upcoming monetary policy review next month.
GOOD OMENS, LINGERING DOUBTS
Analysts still worry over India’s uneven growth and ground realities, notably subdued private sector investment and a state banking sector laden with bad debt.
But monsoon rains arrived early in the country’s south this week, raising prospects of bountiful harvests that will boost farm incomes. And with government pay hikes also in the works, the outlook for a sustained recovery looks good.
A stronger global economy has boosted demand for exports of Indian goods also. And the combination of buoyant external and domestic demand should underpin a recovery in the industrial sector and lift low capacity utilisation at Indian factories.
Shah reckons economic growth could be overstated by as much as 150 basis points. By his estimate, real economic growth is nearer 6 percent.