India's GDP growth outpaces forecasts, grows 7.4%

India’s economy grew 7.4% in the last quarter, at a faster rate than expected, as the country continues to move past a downturn.

The figure, which was fuelled by construction and manufacturing growth, as well as a jump in tax receipts, was up from a revised 6.4% in the previous quarter. It overshot the 6.7% forecast by economists surveyed by Reuters.

The economic uptick in the three months to March will cheer Prime Minister Narendra Modi’s government, which had come under pressure following a sharp slowdown last year.

Modi has since attempted to spur consumption with tax cuts to the salaried middle class, which had become squeezed due to a mixture of stagnant wages and rising costs and household debt.

However, Friday’s data also underscored the extent of the economic weakness over the past financial year ending in March, with GDP growth down to 6.5%, from 9.2% the previous year, according to provisional official estimates.

Many economists believe that India’s economy needs to hit a growth rate of 8% to reach Modi’s goal of reaching developed status by 2047, the centenary of the country’s freedom from British rule.

“For us structurally right now, 6 to 6.5 per cent growth is the new normal,” said Madhavi Arora, chief economist at Mumbai-based Emkay Global.

“If we’re around that number at a time when there’s going to be a global slowdown, it’s a decent number. If we want more, we need to really pull up our socks,” she said.

India still remains the fastest-growing large country and IMF projections show that its economy could be as big as Japan’s this year, at about $4.2tn.

The GDP release comes ahead of a Reserve Bank of India rate decision meeting next week. Economists expect the central bank’s Monetary Policy Committee will cut its key measure for a third straight meeting after inflationary pressures eased.

India also faces relatively lower tariff barriers from US President Donald Trump than other Asian rivals.

“Consumption is likely to have held up relatively well on the back of falling inflation,” said Joe Maher, assistant economist at Capital Economics.

“Growth may remain strong over the coming quarters as lower interest rates filter through into the economy and Indian exporters benefit from punitive US tariffs on China,” he added.