India 's Economy on Road to Recovery, Grows by Over Six Percent in Three Months

By Anjana Pasricha

New Delhi
31 August 2009

India 's economy is on the road to recovery following last year's global financial crisis, expanding by more than six per cent in the three months to June. But there are concerns that a drought could slow down the pace in the coming months.   

The 6.1 percent growth recorded from April to June is the fastest since the financial crisis that began in Western countries last year ended a period of strong growth in India.

The economy grew by 5.8 percent in the previous quarter.

Officials say the latest figures show that plans to return the economy to a high growth path are on track.

The recovery has been possible, in part, because the Indian economy is much less dependent on exports, and is largely sustained by domestic demand. Stimulus packages by the Central Bank amounting to more $100 billion also helped businesses to rebound.

Economists point out that steel and cement production are up, and car sales have soared in recent months.

Montek Singh Ahluwalia, chairman of the Planning Commission and a key economic policy maker, says the economic numbers are consistent with what was expected. He is optimistic that the economy will continue to improve.  

"[It] definitely shows that the worst may be over, and we expect to see an improved performance in the subsequent quarters of the year," he said.

However, there are fears that a drought that has affected nearly half the country could slow the momentum of any economic recovery.

Monsoon rains, which are a lifeline for farmers, have been scant, adversely impacting the planting of crops such as rice, sugar and cotton. This will inevitably mean smaller harvests, lower farm incomes, an increase in food prices, and higher rural unemployment.

Economists say this will drag down the rural sector. But they remain hopeful that the impact of the drought on the economy will not be severe because agriculture only contributes about 20 percent to gross domestic product.

India is not the only Asian economy to be recovering from the global economic downturn. China, Indonesia , South Korea and Singapore are also experiencing periods of economic growth.