NEW DELHI—India's economy bounced back in latest quarter, as a surge in industrial activity and strong services growth helped it regain its scorching pre-crisis pace.
The economy expanded 8.6% in the period ended in March from a year earlier, data released by the government Monday showed, slightly slower than the median estimate for 8.8% growth in a Dow Jones Newswires poll of 11 economists.
.The government raised the growth rate for the December quarter to 6.5% from the provisional 6% rise reported earlier, and for the September quarter to 8.6% from 7.9%, lifting the growth rate for the last fiscal year through March to 7.4%, a tad higher than its own estimate of 7.2%.
The pace of growth in the just-ended quarter matched that of March Protected content , when deceleration set in because of the global financial turmoil.
Finance Minister Pranab Mukherjee said the latest readings are encouraging and that he expects the economy to expand 8.5% in the current fiscal year.
"I expect the current economic momentum to remain," he told reporters.
Sonal Varma, an economist at Nomura Securities, said private sector demand remains strong while services and manufacturing are gaining strength. "We are sure that the economic growth will be sustainable and services sector should pick up further."
The strong growth underscored a revival in domestic and overseas demand, raising prospects of a continued rollback of easy fiscal and monetary policies as authorities grapple with high inflation.
Some economists expect the central bank to raise its key policy rates, possibly even before the next scheduled rate-setting meeting in July, to curb spreading demand pressures that are fueling inflation.
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India's economy grew at a faster-than-expected rate at the beginning of the year.
.Inflation remained close to 10% during the March quarter, hitting a high of 10.25% in February. Economists say the government could also revise upward the March inflation rate to the double digits from a provisional reading of 9.9%.
The Reserve Bank of India is already moving away from a growth-supportive policy that helped India's economy emerge from the global crisis in better shape than most advanced economies. So far in Protected content has raised its two main policy rates by half a percentage point and withdrawn Protected content rupees (US$10.43 billion) of liquidity, as the reviving economy gives it room to focus on inflation.
Economists expect the RBI will continue with an aggressive policy stance and may raise rates by as much as another Protected content points by March.
Rupa Rege Nitsure, chief economist at Bank of Baroda, said the central bank will continue raising rates in a calibrated manner and may hike its key lending and borrowing rates by another 25 basis points each at the July meeting.
Rate hike expectations have been bolstered by robust factory output, which grew in the double digits during the latest quarter due to a low base of comparison and as a pickup in demand has prompted manufacturers to boost production. Heavy demand for automobiles, strong services growth and healthy exports of textiles and jewelry are among the drivers of the economy.
Industrial output rose 13.5% in March, slowing from 16.7% in January.
India's exports grew at the fastest pace in six years in March, the fifth straight month of gains. Exports in March rose 54% from a year earlier to $19.9 billion.