• December 3, 2013, 2:18 PM

Data Suggest a Revival for India’s Economy

After a tough two years for India, a string of recent indicators suggest the economy may at last be regaining its footing.


Data over the past week have shown a pick-up in gross domestic product and manufacturing activity – and a surprising reduction in India’s chronic current account deficit.

“The September quarter finally represents the start of the recovery,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse.

The government announced last week that gross domestic product grew a faster-than-expected 4.8% in the three months to September. That’s far below the 9.3% growth recorded as recently as the 2011 financial year, but it’s better than the previous quarter’s 4.4% growth, the weakest in more than four years.

Until recently India was among the world’s fastest-growing economies, but high inflation, deteriorating government finances and a slow pace of reform have shaken investor confidence.

Economic growth touched a 10-year low of 5% last fiscal year and has been below 5% for the last four quarters. 

 Optimists expect growth to climb back above 5% for the next two quarters, bringing full-year growth above 5% as well.

The economy should get a boost from the weak rupee currency, which makes Indian products more competitive on international markets: Exports have grown at a double-digit pace for four straight months through October.

Economists also are expecting higher farm output from generous monsoon rains, as well as a boost from government efforts to push through approvals for some of the country’s largest industrial projects.

Encouragingly, this week’s HSBC/Markit survey of purchasing managers showed manufacturing activity expanding in November for the first time in four months. 

And the current account deficit — the imbalance that made India a prime target in the exodus from emerging-market assets this summer — narrowed sharply to a four-year low of $5.2 billion in the three months ended September, from $21 billion a year earlier.

Morgan StanleyMS +0.42% was impressed enough that it raised its forecast for India’s gross domestic product growth this fiscal year to 4.7%, from 4.1% previously.

“We believe 2014 will mark the year of adjustment, improving macro stability,” Morgan Stanley said. “This includes addressing high inflation, bringing a sustainable improvement in the current account deficit and rehabilitating the banking sector balance sheet.”
But challenges remain. One is rising prices: Wholesale inflation hit an eight-month high of 7.0% in October, while consumer price inflation has climbed above 10%.
Consumers seem less optimistic than some economists. Car sales at the country’s top two car producers, Maruti Suzuki India Ltd. and Hyundai Motor Co., fell in November from a year earlier.

Meanwhile, efforts to modernize India’s overstretched infrastructure are moving slowly. Data Monday showed output of India’s eight infrastructure industries declined 0.6% in October.

“We expect the revival to be extremely gradual,” said Anjali Verma, an economist at PhillipCapital.

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