India has maintained its position as the second-fastest growing major economy after China as rising consumer and government spending drove manufacturing output to a six-year high.
Asia's fourth-largest economy expanded 8.9 percent in the three months to June 30 from a year earlier, after a 9.3 percent gain in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi. The median forecast of 15 economists was for a gain of 8.4 percent.
Wal-Mart Stores Inc. and Carrefour SA, the world's two largest retailers, are vying to set up in a nation of 1.1 billion people where retail sales are expected to more than double in the next decade as incomes rise. India is stepping up spending on ports, power and other infrastructure to attract more investment in factories and lift manufacturing to a quarter of the economy from the current 17 percent, half China's level.
"Consumption and infrastructure spending are driving growth,'' said Sundaresan Naganath, who manages the equivalent of $2.4 billion in Indian stocks and bonds as chief investment officer at DSP Merrill Lynch Fund Managers Ltd. in Mumbai. ``If India is growing at 8 percent with poor infrastructure, then with great infrastructure it can even grow at 12 percent.''
Sustained growth has been a boon for companies such as Maruti Udyog Ltd. and ACC Ltd., the nation's biggest car and cement maker respectively, which have doubled profits in the past two years. Indian companies will need $175 billion of funding over the next three years as they expand further, K.V. Kamath, chief executive officer of ICICI Bank Ltd., the country's second-largest lender, said yesterday.
Prospects of accelerating economic growth have helped the Bombay Stock Exchange's Sensitive index climb 24 percent since July 19. An index of 18 bank stocks on the exchange reached a record 6094.47 yesterday.
India's economy has expanded more than 8 percent in five of the past six quarters. China's $2.2 trillion economy, Asia's second largest, grew 11.3 percent in the quarter ended June 30. That was the quickest pace among the world's 20 largest economies and more than four times the 2.6 percent growth in the 12 European nations sharing the euro.
Growth in India's economy is benefiting from Prime Minister Manmohan Singh's decision to increase infrastructure spending by a quarter to 992 billion rupees ($21 billion) in the year that started April 1 in a bid to attract overseas manufacturing companies and spur growth to 10 percent over a decade.
Infrastructure spending is spurring demand for steel, cement and electricity in India, which spends a seventh of China's $150 billion investment in public works each year according to Morgan Stanley.
Manufacturing increased 11.3 percent in the quarter ended June 30 from a year earlier, according to today's report. That's the fastest pace since the government started collating quarterly data in June 2000.
An index of trade, hotels, transportation and communications services rose 13.2 percent from a year ago after a 12.9 percent gain in the previous quarter.
"We expect India's economy to continue growing at 8 percent over the next three to four years considering the pace of infrastructure growth,'' said Atul Daga, joint president, corporate finance, at the Aditya Birla Group, which controls Hindalco Industries Ltd., India's biggest producer of aluminum.
Hindalco plans to invest $7 billion by 2012 to triple production of the metal to 1.5 million tons and tap rising demand in the country.
India's Steel Minister Ram Vilas Paswan yesterday called for restrictions in exports of iron ore, the main ingredient for steelmaking. India is aiming to quadruple steel production to 110 million tons by 2020.
"The growth momentum can be maintained if the government improves the quality and quantity of infrastructure,'' said Saumitra Chaudhury, chief economist at rating company ICRA Ltd. in New Delhi. Consumption growth "will abate as the credit market has since become tighter.''
The Reserve Bank of India has increased its benchmark interest rate by 150 basis points since October 2004 to 6 percent, a four-year high, to keep record fuel costs and an expanding economy from stoking inflation beyond its forecast of between 5 percent and 5.5 percent by March 31.
India's Finance Minister Palaniappan Chidambaram said in a Sept. 20 interview that he does not see a "dramatic slowdown'' in consumption and that all aspects of the economy are demanding greater and greater credit.
Chidambaram said commercial bank loans to companies and individuals are growing at 33 percent on year, the fastest since the central bank started collating data in 1971.
Consumer demand for manufactured goods and services is rising as agriculture production rose 3.4 percent in the three months ending June 30 after increasing at the fastest pace in two years in the previous quarter, increasing incomes of 650 million people who depend on farming for their livelihood.
India's Bharti Airtel Ltd., Reliance Communication Ventures Ltd. and other mobile-phone companies signed up a record 111.23 million users by the end of July, an increase of 5.28 million users in July, the nation's telecom regulator said Aug. 10.
In urban areas, HSBC Holdings Plc, Europe's biggest lender by market value, expects to double its current workforce of 22,000 in India over the next two years. ICICI Bank Ltd. plans to hire 40,000 people each year for the next three to four years to cater to rising consumer banking needs.