Steered by higher government spending and the manufacturing and services sector gaining ground again, India might reclaim the status of the world’s fastest-growing economy.
In a Reuters’ poll on annual growth, the average for the December quarter was 6.9 percent, the highest in 2017 and the forecasts ranged from 6.4 percent to 7.3 percent. A 6.9 percent growth would leave behind China’s 6.8 percent annual pace for October-December. The last time India had a faster growth rate than China was in 2016.
The improvement in India’s growth comes long after its manufacturing and services sector’s struggle with the launch of the goods and services tax (GST), a national sales tax reform.
“After muted activity until September, signs of a pick-up in economic growth are starting to appear,” said Aditi Nayar, principal economist at ICRA, the India arm of rating agency Moody‘s.
A strong GDP could lift domestic shares and boost the rupee, which has been Asia’s second weakest currency this year, losing about 1.6 percent against the dollar.
The government will release GDP data on Wednesday around 1200 GMT and the data could be beneficial for PM Narendra Modi, who is facing criticism over the rising bad loans of the public sector banks.
Last week, Modi told industrialists that his government was determined to put the economy back in the path of higher growth and increased government spending by allocating 2.1 trillion rupees for re-capitalisation of state banks, plagued with rising bad loans of about $148 billion.
He has increased spending on infrastructure and welfare projects to accelerate growth ahead of national elections in 2019. This has widened the fiscal deficit for the current fiscal year to 3.5 percent of GDP, instead of the earlier projected 3.2 percent.
In November last year, Moody’s raised India’s investment grade rating, the rating agency’s first upgrade in nearly 14 years.