The Indian economy grew at a better than expected rate of 7.6% in the second quarter ending September, though economists continue to predict growth below 7% for the full year. India, Asia’s third-largest economy, expanded 7.9% in the previous three months and 9.3% during the same period last year.

Expansion of GDP for this quarter was lower than 9.3% in the same quarter a year ago, but marginally lower than 7.9% in the previous quarter. The consensus estimate of economists polled by Business Standard had predicted the growth rate at 7-7.4%.

The resilience of the services sector — which contributes more than half of the total output — was cited as the major reason for a slower deceleration of the economy. In particular, transport and communications sector posted a much better growth rate.

On a quarter-on-quarter and year-on-year basis, only one out of eight industry segments posted higher growth rates in the latest numbers released by Central Statistical Organisation (CSO), suggesting that the impulses for growth are still weak. A poll of five economists revealed that they are not changing their second-half estimates based on the second quarter numbers. They are all projecting Indian economy to grow below 7% in the second half of the current fiscal, and 6.8-7.3% for the full year.

“We will see moderation in the second half because the momentum in services sector will peter out, especially in transport and hotels,” predicted DK Joshi, economist with ratings and advisory firm Crisil.

He now expects the Indian economy to grow at 6 to 6.5% in the second half.

Signs of optimism, however, stem from the growth rate of Gross Fixed Capital Formation (GFCF), which approximates to investments made. Q2 GFCF growth was much higher than expected at 14% against 8.95% in the previous quarter.

Economists said the impact of the global crisis began to manifest itself in a significant way after September this year, as reflected in 10% dip in exports in October 2008.

“The recession in several major economies now foreshadows a tough time ahead for India,” said Sherman Chan, an economist with Moody’s Economy.com in a recent note. She predicts that the growth rate of the Indian economy will slow to less than 7% over the next four quarters.

From the Business Standard