India's economy grew faster than economists estimated last quarter

India's economy grew faster than economists estimated last quarter, adding to evidence of a strengthening of domestic demand is fueled inflation by placing strains on the nation's transportation and energy systems.

Gross domestic product rose 8.9 percent in the three months to September last year, matching the revised rate of growth in the previous quarter, the Central Statistical Organization said in a statement today in New Delhi. That was more than the median estimate of 8.2 percent, from 30 economists surveyed.

infrastructure improvements will be critical to sustaining India's rate of expansion, the Indian Prime Minister Manmohan Singh, said this month that inflation is running almost double what the government considers "ideal." The Reserve Bank of India may be necessary to resume interest rates in coming months after raising borrowing costs six times this year.

"Inflationary pressures remain high because the consumer demand strong growth fuels amid growing capacity constraints," said Vishnu Varathan, a Singapore-based economist with Capital Economics Ltd. "The Bank of the Fed will have to come back and probably raise rates further early next quarter to ensure inflation remains under control. "

Central bank governor Duvvuri Subbarao on November 2 raised the benchmark repo rate and reverse repurchase rate by a quarter point each to 6.25 percent and 5.25 percent, saying that inflation continues to above the "comfort zone."

No 'Ideal'

The inflation rate wholesale prices was 8.58 percent in October compared with the "ideal" level of 4 percent to 5 percent, the Finance Minister Pranab Mukherjee. Consumer prices are rising at a rate close to 10 percent, the fastest in the Group of 20 countries after Argentina.

quarter of India's GDP last profit compared with a 1.9 percent expansion in the 16 countries of the euro, 2.5 percent in the U.S. and 9.6 percent in China. The Organization for Economic Cooperation and Development on 18 November, said a high level of unemployment in the U.S., Europe to the sovereign debt crisis and increasing trade imbalances around the world represent a risk to global recovery.

Faster growth is to increase revenue for the government of Prime Minister Singh, giving space to reduce the budget deficit target of 5.5 percent of GDP more than 16 years of 6.9 percent last year even though spending on oil and fertilizer subsidies rises. Officials have sought approval of parliament on November 15 to spend an extra 50 billion rupees (U.S. $ 1 billion) in subsidies to fertilizer after seeking 140 billion rupees to limit oil prices in August.

Boost Bonds

India bonds this month have increased faster growth makes its concern about the budget deficit. Yields on 10-year government bond fell 7 basis points this month until today, to 8.04 percent, the debt only among BRIC nations gather for the period. BRIC refers to Brazil, Russia, India and China. Sensitivity index of Bombay Stock Exchange, or Sensex, was little changed at 19,400.46 as of 12:28 pm in Mumbai trading, erasing earlier declines of up to 1 percent.

Meanwhile, concerns that the political turmoil that impede legislative work has offset the effect of the RBI percentage points of rate increases at 1.5 on the rupee, reducing its earnings for the year against the dollar to about 1 percent.

The currency pared earlier losses and was quoted at 45.95 against the dollar after weakening to 0.4 percent to 46.१२५०.
Federal investigators arrested eight bankers and brokers in India on November 24 amid allegations of improper loan disbursements.

Attracting capital

Anubhuti Sahay Economists including Standard Chartered Bank said faster growth and higher interest rate differential can attract capital flows that contribute to inflation.

The Reserve Bank's benchmark repurchase rate in India is 6.25 percent. In comparison, the U.S. objective Federal Reserve for overnight interbank loans to another is zero and 0.25 percent, where it has been since December 2008.

The rate differential between India and advanced countries stimulated an unprecedented 10 billion U.S. dollars in rupee debt flow this year. Overseas funds also invested a record 28.5 billion U.S. dollars on Indian reservations in the prospects for faster economic expansion in the nation in southern Asia.

1300000000000 economy dollar is likely to expand by 8.5 percent in the fiscal year through March, the biggest in three years, Prime Minister Singh said 20 November. Finance Minister Mukherjee said that economic growth may be higher than the target after the release of today, while Kaushik Basu, Chief Economist at the Ministry of Finance, said that India could achieve a growth of 9 percent before than expected.

Challenges to sustain growth rates include handling "effectively to the threats of corruption," Singh said earlier this month.

Corruption risk

The opposition parties led by Bharatiya Janata Party chief has stalled parliamentary proceedings since 09 November, demanding a deeper investigation against a minister who is responsible for allocating phone licenses at prices below the market.

The increase in car sales and expand bank loans to provide evidence of growing consumer demand in the third largest economy in Asia.

Maruti Suzuki India Ltd., the largest automaker in India, Tata Motors Ltd. and others sold a monthly record of 182,992 vehicles in October, according to the India Society of Automobile Manufacturers. The loans granted by lenders such as State Bank of India Ltd. and its rivals rose 22.3 percent in the fortnight of November 5, the fastest pace since January 2009.

Given the strong demand, high inflation and sticky, "we believe the RBI will raise rates another 25 basis points at its policy meeting in January," said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai .

Agricultural production grew 4.4 percent in the three months to September compared with a gain of 2.5 percent in the previous quarter, today's report showed. Mining rose 8 percent, manufacturing gained 9.8 percent, while construction increased 8.8 percent.