By Shivangi Acharya and Manoj Kumar
NEW DELHI (Reuters) -India's economy grew at a much faster pace than expected in the July-September quarter, helped by government spending and manufacturing, raising expectations that Asia's third-largest economy will outperform its own estimates for the full year.
The Indian economy expanded 7.6% in the September quarter, faster than the 6.8% forecast in a Reuters poll of economists and the Reserve Bank of India's estimate of 6.5%.
The South Asian country continues to be one of the fastest growing major economies, amid western economies being squeezed by high interest rates and energy prices, and a slowdown in China.
The pace of growth was slightly slower than the 7.8% expansion India's economy saw in the previous quarter, helped by the comparison with a lower base the previous year.
The manufacturing sector, which for the past decade has accounted for just 17% of the economy, expanded 13.9% year-on-year in the September quarter, compared with a revised 4.7% in the previous three months.
"The buoyant growth is being underpinned by cyclical factors like robust corporate profits, a strong fiscal impulse ... and a boisterous financial sector," said Madhavi Arora, economist at Emkay Global.
Government spending rose 12.4% year-on-year in the July-September quarter compared to 0.7% contraction in the previous quarter.
Growth in capital formation, an indicator of investment, picked up pace to 11% year-on-year from 8% in the previous three months.
However, private consumption growth surprisingly slowed to 3.1% year-on-year from 6%.
"The data doesn't look that good on the consumption side... This is largely due to a weakness in rural demand and it is being reinforced by the low growth in the agricultural sector," said Suman Chowdhury at Acuite Ratings & Research.
'ECONOMY ON FIRE'
Some economists and policy makers expect India to beat the government's growth projection of 6.5% for the fiscal year, even though the next two quarters could see some moderation due to tight monetary policy conditions beginning to impact demand.
"With a strong first half, full-year growth rates might be subject to an upward revision of 40-50 basis points compared to our present estimate," Radhika Rao, economist at DBS Bank said.
India Chief Economic Adviser V. Anantha Nageswaran said strong tax collection suggests the economy might be doing better than what is being currently measured but he stuck to the government's 6.5% growth projection.
"We might be understating India’s growth rather than overstating it," he said.
With the latest print, in the first half of the fiscal year India's growth averaged 7.7% between April-September.
India's growth would give space to the Reserve Bank of India (RBI), which held its rates for the fourth consecutive policy meeting in October, to focus on food inflation, which it believes is uncomfortably high.
"An economy on fire, and the persistent food inflation threat, suggest to us that the RBI will be in no hurry to loosen policy," Capital Economics' Thamashi De Silva said.
De Silvia said she expected the central bank to start its easing cycle in the second half of 2024, much later than most major emerging economies.