The services sector leads India’s economy to its fastest annual growth rate.

India’s economy is anticipated to do well in its most recent assessment due to robust growth in the services sector and an uptick in manufacturing despite high-interest rates. According to the consensus estimate in a Bloomberg survey conducted before the release of the data on Thursday, the gross domestic product increased by 7.8% over the previous year in the three months ending in June. This is greater than a 6.06% expansion in the three months ending in March and is the fastest pace in a year.

In advance of multiple state elections this year, the financial authorities have room to fight inflation thanks to steady growth in Asia’s third-largest economy. For a third time, the central bank held interest rates steady while directing banks to absorb surplus liquidity and export limits on some basic foods.

Increased capital spending by the federal and state governments should partially offset the effects of a cumulative 250 basis point rate hike since May 2022 and sluggish international demand for Indian exports, he continued. Increased tax collections have led to an increase in state revenues.

Inflation in the retail sector surged to a 15-month high of 7.44% in July, increasing the likelihood of another rate increase. The world’s most populous country may continue to see high food costs as lower-than-average monsoon rainfall from June to September and dry El Nino meteorological conditions have an impact on crop production. In a separate Bloomberg survey, economists predicted 6.1% growth rather than the Reserve Bank of India’s 6.5% forecast for the fiscal year ending in March 2024.

Businesses in the hospitality, transportation, and information technology sectors are growing, which might increase demand for the services sector, which accounts for more than half of GDP. In the financial services industry, double-digit loan growth is also beneficial.

Additionally, it’s likely that manufacturing output increased as global commodity prices and supply chain bottlenecks eased. Though orders from significant purchasers have decreased, exports have remained weak, with item shipments declining for eight straight months.

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