The Indian Rupee advanced against the Pound and other major peers on Friday after data showed that India’s economy expanded at its fastest pace in more than two years in the second quarter of 2014.
According to India’s Central Statistical Office the nation’s Gross Domestic Product rose by 5.7% in the second quarter of the year and marks the biggest increase seen since March 2012. The figure was better than the first quarter’s figure of 4.6% and beat economist expectations for a 5.5% increase.
The Indian Central Banks decision to raise interest rates earlier in the year and its intervention in the currency markets saw the nation’s exports strengthen and imports slow.
Also adding to the economy’s expansion was a 10.4% leap in Finance and Insurance industries, Manufacturing output increased by 3.5%, mining by 2.1% and gas and electricity output climbed by 10.2%.
Trade, hotels, transport & communication that forms the biggest component of the GDP report comprising little over 25%, also did better and grew by 2.8% during the period. Between April and June 2013, it has grown by 1.6%. The agriculture sector grew by 3.8% during the period, in comparison to 4% last year and 4.7% between January and March 2013.
‘There’s no doubt that this is the start of a recovery. A closer look reveals it is propped up by government spending. For sustained growth, it is crucial to get right the mix of industrial growth and it’s lagged impact on services,’ said Prasanna Ananthasubramanian, chief economist at the Mumbai based ICICI Securities.
The strong GDP report is good news for the government of Prime Minister Narendra Modi who has pledged to tackle corruption and get India’s economy back on the right track. Upon being, elected Modi pledged to cut India’s budget deficit to a seven-year low a pledge that was seen as a positive by economists.
There are threats to India’s recovery however. Weak Monsoon rains are likely to negatively impact on crop yields, which in turn will see the price of food rise, adding to inflation concerns already in place. Unpredictable oil prices because of conflicts in the Middle East and geopolitical concerns over Ukraine could harm the Indian economy in the near term.
‘We aren’t saying this is a broad based pickup but things do seem to be bottoming out. Overall things seem to be turning and things are in place for growth to move up to over 6.5% in 2016,’ said an economist for ANZ.
Sterling meanwhile is continuing to find support from expectations that the Bank of England will raise interest rates soon.
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