India is once again the world's fastest-growing major economy

An Indian labourer works at a flyover construction site. (Sanjay Kanojia / Getty Images)
  • India’s economy grew by 7.2% in the December quarter, overtaking China which grew by 6.8%.
  • It follows a 12-month period of slower growth, following the twin shocks of demonetisation and a new tax.
  • Gains were led by the agricultural and construction sectors, while mining contracted slighlty.

India’s economy rebounded in the fourth quarter of 2017, moving ahead of China to record the fastest rate of growth among the world’s biggest economies.

Data for the December quarter, released last night Australian time, showed headline GDP growth rose to 7.2%, up from 6.5% in the previous quarter.

China recorded comparative Q4 growth of 6.8%, and the latest data on manufacturing activity from the Chinese government showed a sharp slowdown in February.

The result marks a return to form for India’s economy, which fell behind China over the past 12 months following two economic events which dragged on growth.

In November 2016, the economy reeled after Indian authorities removed 500 and 1,000-rupee notes from circulation as part of a crackdown on tax evasion.

That was followed by the introduction of a goods & services tax last July, which was the catalyst for a sharp contraction in manufacturing activity.

Along with the increase in headline GDP, the gross value added measure stood at a reading of 6.7% — up from 6.2% in the previous quarter.

Gross value added is seen as a more accurate measure of growth as it removes the impact of indirect taxes and subsidies, according to Bloomberg.

India’s headline GDP growth is now expected to grow by 6.6% in the year-ended March 2018 — an upward revision of 10 basis points from the 6.5% forecast in January.

The latest increase was driven by faster growth in the agriculture and construction sectors, while the contribution of the mining sector contracted slightly.

Amid a slightly improved growth outlook and some upside risk to inflation, India’s central bank is expected to keep benchmark interest rates on hold at 6% in the near-term.

India’s Nifty50 stock index closed 0.58% lower yesterday to finish down by by around 4.9% for the month of February.

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