India's economy grew 7.9 percent in the July-September period, the fastest pace in six quarters, bolstered by government stimulus measures and rising industrial production, figures showed Monday.
The upsurge suggests that Asia's third largest economy is emerging faster from the global slowdown than many expected, despite agriculture being hit by drought. The upswing is likely to encourage the central bank to proceed with gradual monetary tightening.
Economists had expected the economy to grow 6.3 percent from a year earlier after growth of 6.1 percent in the April-June quarter. The benchmark Sensex index was up 2.2 percent in midday trade, to 16,991 points.
During the July-September quarter last year growth was 7.7 percent. Growth for the fiscal year ending March 31 skidded to 6.7 percent, its worst since 2003. From 2003-2008, India's economic growth averaged 8.8 percent a year.
Strong industrial production, rising private consumption and government stimulus drove growth during the September quarter, data from the government's Central Statistical Organization showed Monday.
Mining and quarrying activities expanded 9.5 percent for the quarter from the same period a year earlier. Manufacturing was up 9.2 percent.
Private consumption increased by 5.6 percent from the year-ago quarter in constant currency terms, and government spending rose 26.9 percent.
Clouding the horizon was poor agricultural performance. The government said growth in agriculture, forestry and fishing was just 0.9 percent for the quarter.
India suffered its worst summer monsoon since 1972, which has fueled food price inflation and cut into output.
The government estimated that production of rice, coarse cereals and oil seeds will fall between 14.8 percent and 19.7 percent this season - declines largely not reflected in this quarter's GDP numbers.
While less than 20 percent of GDP comes from agriculture, some 65 percent of the population relies on farming for their livelihood. That means there could be knock-on effects on rural consumption from poor farm output.
Most economists believe the central bank won't hike key interest rates until the first half of 2010, despite nine months of rising industrial production and the bank's increasing preoccupation with inflation.
Since September 2008, the bank has infused India's trillion dollar economy with more than 5.85 trillion rupees ($125.5 billion) in actual or potential liquidity.
"Consumer demand remains very strong and the Indian economy is back to a very high growth rate," Adi Godrej, chairman of the Godrej Group, an engineering and consumer products conglomerate, told reporters. "To my mind, GDP growth this year will cross 7 percent. This trend leads to a possibility of even 9 percent growth in the next fiscal (year)."
Associated Press Writer Ashok Sharma in New Delhi contributed to this report.
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