India records strong 7.2 percent annual growth amid global slowdown

Mumbai: India´s GDP grew by 7.2 percent in the year to March, official figures showed on Wednesday, boosted by services and consumption, putting it among the world´s fastest-expanding major economies.

The South Asian nation is the world´s fifth-largest economy, and recently surpassed China to become the most populous country. Its growth has rebounded since the pandemic -- the economy rocketed 9.1 percent in the 2021-22 financial year. But like other countries, it has been buffeted by global headwinds including tightening global financial conditions, the war in Ukraine and geopolitical tensions. India imports more than 80 percent of its crude, with Russia´s invasion of Ukraine driving up oil costs.

But its economy grew by 6.1 percent in the fourth fiscal quarter from January to March compared with the same period last year, according to National Statistical Office data. In the same period, China´s economy expanded 4.5 percent year-on-year according to its National Bureau of Statistics, while Washington´s Commerce Department said the United States grew by an anaemic 1.1 percent.

China is rebounding after the end of zero-Covid measures that battered business and supply chains, but is bedevilled by a host of other headaches. Meanwhile the United States is battling persistently elevated inflation, Germany is in a technical recession amid an energy crisis triggered by the Ukraine war, and Japan expanded by just 0.4 percent in the first quarter.In India, growth in financial, real estate and other services strengthened from the previous year, while the manufacturing sector expanded at a much slower pace. The quarterly and annual figures were slightly above market expectations of around 5.5 percent for the quarter and 7.0 percent for the 2022-23 financial year.

The robust growth is expected to bolster Prime Minister Narendra Modi´s economic credentials ahead of 2024 general elections, where he is expected to lead his party to a third term in office. Analysts said government spending and domestic consumption have also helped India´s economy remain robust. The World Bank´s India country director, Auguste Tano Kouame, said in April that the economy "continues to show strong resilience to external shocks".

"Notwithstanding external pressures, India´s service exports have continued to increase, and the current-account deficit is narrowing." Economists said softening crude oil prices at the start of this year, coupled with a flourishing services sector, had driven growth for the quarter.

India´s services sector jumped to its highest level in nearly 13 years in April on the back of strong finance and insurance output, according to the S&P Global India Services Purchasing Managers´ Index, a private survey.

Inflationary pressures, which had led the Reserve Bank of India to lift interest rates from 4.0 percent to 6.50 percent between May last year and February before pausing in April, have eased in recent months. Retail inflation fell to 4.70 percent in April, within the central bank´s target band of 2.0 to 6.0 percent, from 5.66 percent inMarch and down from a peak of 7.79 percent in April last year.

Looking forward, the Reserve Bank projected GDP growth of 6.5 percent in the 2023-24 financial year in its annual report published Tuesday, citing easing inflation risks. The International Monetary Fund forecasts India´s economy to grow by 5.9 percent in the 2023-24 financial year. Daniel Leigh, who heads the World Economic Studies division in the IMF´s Research Department, in April called the country "one of the bright spots in the global economy". State Bank of India Chief Economic Adviser Soumya Kanti Ghosh added in a note on Friday that the manufacturing sector was expected to rebound, while the boost in government spending would "strengthen job creation and demand".

But analysts have warned that the unemployment rate, which has been rising this year and reached 8.11 percent in April according to data from the Centre for Monitoring Indian Economy, could weigh on the economy. India´s benchmark Sensex index closed down 0.55 percent in trading in Mumbai on Wednesday ahead of the GDP data release.