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India Sees Strong Economic Growth - 2004-10-04

India's economy has grown strongly in recent months, surpassing expectations. The robust growth has eased concerns that the left-leaning coalition that came to power four-months ago would slow one of Asia's fastest growing economies. India's economy grew faster than expected at 7.4 percent between April and June, continuing down the path of high growth that began last year.

The momentum came from strong expansion in the manufacturing and services sector. The two account for nearly three-quarters of India's 575-billion-dollar economy.

Economist T.R. Bhaumik with the Confederation of Indian Industry says the growth beat expectations. "What we see is a continuation of the positive trend that we had witnessed last year. This clearly shows that Indian economy is on a high-growth momentum now," he says.

But the agriculture sector has lagged behind, growing by a meager 3.4 percent. That trend is likely to continue because this year's poor monsoon rains are expected to produce smaller harvests.

Mr. Bhaumik warns that the agriculture sector may slow down India's economy in the long run. Nearly two-thirds of India's one-billion people rely on farming - and rural markets snap up goods ranging from soaps to motorcycles in good monsoon years. "If agriculture does not do very well in the next two years, then the tempo of growth in the manufacturing sector may slow down," he says.

There are also worries about inflation, which is running at more than seven-percent, a three-and-one-half-year high.

But economists say the overall strong growth will be a shot in the arm for the new Congress-led coalition government, which came to power in May. There were widespread concerns of a slowdown in the economy because the coalition relies heavily on leftist parties, which oppose foreign investment and privatizing national industries.

But the government has reiterated its commitment to pro-growth policies, while promising to boost investment in rural infrastructure to revive agriculture. Estimates for India's economic growth this year vary between six to seven-percent.

But the International Monetary Fund says that growth will only be achieved if the government liberalizes its trade and agriculture policies.