'GDP growth accelerated on govt spending'

By agencies   |   Wednesday, 29 June 2005, 07:00 Hrs
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NEW DELHI: India's economic growth probably accelerated last quarter as manufacturers built factories and the government increased spending on roads, railways and irrigation.

Asia's fourth-largest economy expanded 6.8 percent from a year earlier in the three months to March 31, according to the median forecast of seven economists in a Bloomberg survey. The previous quarter's 6.2 percent pace was the slowest in 1 1/2 years. The government report is due at noon tomorrow.

Companies including Hyundai Motor India Ltd. say they plan to increase investment to tap demand that's being fueled by the cheapest credit in 32 years. Corporate and government investment may help India meet Prime Minister Manmohan Singh's target of 7 percent annual growth in the fiscal year that started on April 1, said economist Rajeev Malik.

``Strong domestic demand was the main driver of growth'' last quarter, said Malik, an economist at JPMorgan Chase & Co. in Singapore. Gains in production suggest that ``the first quarter of the new fiscal year started on a strong footing.''

Manufacturers are spending more on equipment as they expand. Production, which accounts for 27 percent of the economy, grew 8 percent last fiscal year, the fastest in five years. The pace picked up to 8.8 percent in April.

Singh, who came to power in May 2004 with promises to help the poor, is boosting spending to improve the lot of the 350 million Indians who live on less than $1 a day.

Spending to build roads and provide drinking water in rural areas rose 13 percent to 182 billion rupees in the year ended March 31. A further 152 billion was spent to upgrade railways and to create jobs in villages.

Singh's government has earmarked more than a 10th of its $117 billion budget to build more roads and power plants this fiscal year. It plans to spend $40 billion by 2009 to improve roads, hospitals and other facilities in villages.

The government also plans to lure more money from abroad by raising limits on overseas investment in industries such as telecommunications, aviation and banking. Its goal is to attract $150 billion in a decade.

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