India steps up to replace China as growth engine

Oct 14, 2015 (LBO) – India stands out in economic growth terms, especially in Asia, this year and is stepping up to the plate to replace China as the world’s growth engine, analysts say.

Indian industrial production surged to a three-year high of 6.4 percent in August, when countries such as Thailand, Brazil, Japan, South Africa sank deeper into contraction territory.

The industrial expansion in China and Malaysia was positive, albeit slower, CNBC said in a report.

Although the South Asian economy experienced 14 percent less rainfall in the June to September period, overall production has benefitted from lower commodity prices as companies in India, which is a net importer of oil, saved on input costs.

“A rising trend in industrial production, together with low inflation, positive basic balance, strengthened policy credibility, and the opening up of central and state government debt markets to foreign investors will all help keep investors bullish Indian rupee,” Citi analysts said.

Support from government spending-led boosts to infrastructure investment, lower financing costs and easing inflation are expected to underpin the upturn, Radhika Rao, a DBS economist, told CNBC.

India is in a goldilocks period of low inflation coupled with gradual recovery and the country should post GDP growth of 7.6 per cent this year, Japanese financial services firm Nomura said.

ADB expects growth in India to slip to 7.4 percent this year from an earlier forecast of 7.8 percent. But this still beats China’s expansion of 6.8 percent this year. The Chinese government’s forecast for the economy is 7 percent.

Economists expect India’s momentum to continue, which should see the central bank keep monetary policy unchanged until early 2016. September inflation rose to 4.4 percent on year but was in line with the Reserve Bank of India’s January 2016 target of 6 percent.