Amid a weak global economic scenario, India continues to shine as one of the best performing economies by recording the fastest growth rate in five years. India’s Gross Domestic Product (GDP) expanded at a faster-than-expected 7.9 per cent in the March 2016. This beat the expectations, surprising economists as India grew at 7.6 per cent in 2016.
The growth rate is a cause of rejoicing for the Modi government which has just completed two years in office. Some of the analysts have said that the government’s focus on infrastructure spending is yielding results. The opposition has claimed that the growth rate had started picking up in 2013 itself when the economic recovery began.
One of the major factors that kick-started the GDP growth has been rising consumer spending. This has been fuelled by a series of rate cuts by the Reserve Bank of India (RBI). The RBI Governor Raghuram Rajan has cut the repo rate by 150 basis points since January 2015. The current repo rate is 6.50 per cent – the lowest level in more than five years.
Due to a stronger consumer spending, it has helped compensate for private investment, which remains sluggish. This is the major reason that investors want rate cuts to continue. However, some economists say that the latest GDP data and rising inflationary trend have reduced the chances of an interest rate cut next week when the RBI meets to finalise its monetary policy.
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