Montek Singh Ahluwalia, India: GDP Grows at 8.8 % - Manufacturing Up 12.4%

Anjana Pasricha

August 31, 2010

India's economy has posted its strongest growth since the global downturn battered economies around much of the world. Its economy grew by eight-point-eight percent in the quarter that ended in June, its fastest expansion in the last two years.

Although India was not affected as severely as many Western countries by the global recession, its fast growing economy had slowed down.

But policy makers are optimistic that the economy has emerged strongly from the financial crisis and returned to a high growth path. Montek Singh Ahluwalia, is the deputy chairman of the Planning Commission.

"I think the growth rate is better than most people thought, Ahluwalia said. "There is a lot of growth momentum in the economy."

The economic growth has been powered by the manufacturing sector, which grew at 12.4 percent. Millions of middle class consumers are buying cars, mobile phones and other consumer goods, keeping factories humming.

Economists say the economy could slow down marginally in the coming months.

But the real worry remains persisting high inflation, which topped 11 percent last month. High food prices have led to an outcry among poor people who spend a large part of their income on food. Nearly 600 million people live on less than $2 a day.

The government has said that bringing down inflation is a priority. It hopes that ample monsoon rains this year will raise farm productivity and drive down prices. A poor monsoon last year had been blamed for the soaring food prices.

Planning Commission's Ahluwalia expects inflation to moderate in the coming months.

"The actual underlying movement of prices in the last four months or five months or so suggests a very distinct moderation," said Ahluwalia. "And I remain of the view that I expect the inflation rate to be six percent by December."

India is the world's second fastest growing economy, after China. The government expects that growth will reach 10 percent by 2013, provided that the global economy continues to recover. Policy makers say high growth is necessary to pull millions of people out of poverty.