Indian GDP Grows at Fastest Pace in More Than 2 Years
Bloomberg News, May 31, 2006

By Cherian Thomas
May 31 (Bloomberg) -- India's economy grew at the fastest pace in more than two years last quarter as bumper harvests and hiring at computer-related companies spurred spending on housing and mobile phones.

Asia's fourth-biggest economy expanded 9.3 percent in the three months ended March from a year earlier as growth in farm output almost doubled, the government said in New Delhi. That beat the 7.9 percent forecast of a Bloomberg News survey and is the fastest after China among the world's 20 biggest economies.

Higher farm output and 229,000 new jobs last year at Microsoft Corp. and other computer companies have given Indians more money to spend on services such as holidays and insurance, which make up half the $775 billion economy. The government plans to invest in roads and ports to boost growth to 10 percent and end poverty in the world's second-most populous nation.

``Agriculture was the surprise and it's a positive for consumption,'' said Shuchita Mehta, an economist at Standard Chartered Bank in Mumbai. ``New jobs are being created, particularly in technology companies, and that's boosting demand for goods and services.''

Gross domestic product grew 8.4 percent in the financial year ended March 31, the government said, faster than its Feb. 7 projection of 8.1 percent. The economy expanded 7.5 percent in the previous year.

Stocks, Currency

The better-than-expected figures failed to stem a decline in stocks triggered by concerns an exodus by overseas investors may accelerate as interest rates rise. Emerging-market stocks were headed for the biggest monthly drop in more than 3 1/2 years.

India's benchmark Sensitive index fell 4.2 percent to 10333.96 at 2:45 p.m. in Mumbai. The rupee fell 0.1 percent to 46.32 against the dollar.

The ``growth numbers may prove to be a positive for the currency at a later stage, but at the moment we are seeing high demand for dollars from oil importers while overseas investors are selling stocks,'' said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai.

Accelerating growth may fan inflation and prompt the central bank to increase its key interest rate at the next review on July 25, Standard Chartered's Mehta said.

The Reserve Bank of India has increased its benchmark rate by a full percentage point since October 2004 to 5.5 percent to curb inflation amid rising fuel costs. The bank expects economic growth to slow to between 7.5 percent and 8 percent this year.

Interest Rates

India's bonds are set for the biggest monthly loss in more than a year. The yield on the benchmark 10-year bond rose 28 basis points this month, or 0.26 percentage point, to 7.67 percent, according to data compiled by Bloomberg. The yield, which moves inversely to prices, increased by 1 basis point, or 0.01 percentage point, today.

Farm output grew 5.5 percent last quarter compared with a 2.9 percent gain in the previous three months, the government said. The pace was the fastest since the quarter ended March 2004.

Above-normal monsoon rains improved harvests and incomes of two-thirds of India's population that lives in rural areas. Agriculture accounts for about 22 percent of the economy.

Services such as trade, hotels, transport and communication expanded 12.9 percent in the fourth quarter, compared with 10.2 percent gain in the previous three months. Finance and insurance services expanded 10.5 percent, compared with 8.9 percent in the previous quarter, the government said.

Manufacturing expanded 8.9 percent in the fourth quarter following 8.3 percent growth in the previous quarter.

Infosys, Dell

Infosys Technologies Ltd. and Tata Consultancy Services Ltd., India's biggest software makers, plan to hire more workers this year. Tata Consultancy plans to add 30,500 jobs and Infosys 25,000, the companies said separately in April.

Dell Inc., the world's largest personal-computer maker, and Microsoft are among overseas companies hiring workers in India where software programmers' wages are a sixth of those in the U.S.

Dell said in March it plans to double its workforce in India to 20,000 in three years. Microsoft said in December it plans to almost double its workforce in India to 7,000 in the next two to three years.

India accounts for about half of the $40 billion transaction processing and other work that is sent abroad mainly by U.S. and European companies each year, according to the National Association of Software and Service Companies, boosting jobs.

India's software companies are expected to create 2.3 million jobs by 2010 and an additional 6.5 million indirectly, a McKinsey & Co. study said.

Job Creation

The government wants the economy to create 10 million jobs a year to improve incomes and lives of a third of India's 1.1 billion people who, according to the World Bank, live on less than $1 a day. About 8 percent of the 412 million people eligible to work are unemployed, according government estimates.

Prime Minister Manmohan Singh is increasing infrastructure spending by 24 percent to 992 billion rupees in the year that began April 1 to attract investment from manufacturers such as Intel Corp. Manufacturing makes up 16 percent of India's economy compared with 39 percent in China.

Demand for steel in India may more than quadruple in the next decade as investment in railways, ports and other infrastructure projects increases, the government estimates.

Record profits at companies such as cement maker Associated Cement Companies Ltd. and motorcycle maker Bajaj Auto Ltd. have helped India's benchmark stock index rise more than 50 percent in the past year, compared with a 25 percent gain in Morgan Stanley Capital International's Asia Pacific Asia excluding Japan Index.

Jet Airways (India) Ltd., the nation's biggest domestic airline, flew 15 percent more passengers in the year ended March 31. Mobile-phone companies including Bharti Airtel Ltd. added a record 5.26 million users in March.

``The about 8 percent growth rate last financial year has contributed to a very positive business sentiment,'' Anand Mahindra, managing director at Mahindra & Mahindra Ltd., India's biggest tractor maker, said May 29. ``However, rising interest costs and crude oil price will need careful monitoring. We look forward to the new fiscal year with measured optimism.''