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India sees growth as businesses adjust to new tax

Reuters

A worker carries a basket filled with coal to load it onto a truck at a coal yard in an industrial area in Mumbai on Thursday.

Reuters NEW DELHI (Reuters) — India’s economic growth rebounded in the three months ending in September, halting a five-quarter slide as businesses started to overcome teething troubles after the bumpy launch of a national sales tax.

Data released on Thursday showing faster growth could help Prime Minister Narendra Modi, who has been facing criticism over the hasty July launch of a goods and services tax (GST).

The tax was aimed at transforming India’s 29 states into a single customs union, but it has hit millions of small businesses due to complex rules and technical glitches.

Gross domestic product grew 6.3 percent in July-September, its fastest pace in three quarters, compared with 7.5 percent a year earlier, the data showed.

Analysts polled by Reuters had forecast annual growth of 6.4 percent in the quarter. The economy has also broadly moved past the disruptions encountered after a shock ban on high-value banknotes in November 2016, economists said.

“Perhaps the impact of two very significant structural reforms — demonetization and the GST — is now behind us,” Finance Minister Arun Jaitley told reporters after the release of data.

“Hopefully, in the coming quarters we can look for an upward trajectory.”

Economic growth picked up from 5.7 percent in April-June, but lagged China’s 6.8 percent and the Philippines’ 6.9 percent for the three months through September.

Many private-sector economists expect faster growth in the current quarter and January-March as consumers and businesses step up spending and the global recovery gains traction.

Thursday’s data showed that the manufacturing sector grew 7 percent in the September quarter compared with 1.2 percent the previous quarter, as companies build up stocks ahead of the festival season.

Earnings for major Indian companies rose at their best pace in six quarters during July-September, according to Thomson Reuters Eikon data, showcasing how profits are finally looking up after a prolonged spell of sluggish growth.

On Nov. 17, Moody’s upgraded India’s sovereign credit rating for the first time in nearly 14 years, saying continued progress on economic and institutional reforms would boost its growth potential.

The agency expects the economy to grow 6.7 percent in the fiscal year ending March 31, and 7.5 percent the following year.

Modi’s administration hopes the ratings upgrade can attract more foreign investors, who pumped $15 billion into Indian equities in July-September, up 44 percent from the previous quarter.

The main NSE share index is up 25 percent in 2017.

Analysts said the Monetary Policy Committee of the Reserve Bank of India, which left the repo rate unchanged at 6 percent last month, could hold rates when it meets for a policy review next week.

“We expect RBI to remain on pause in December and February, given upside risks to inflation as well as the fiscal deficit,” said Sumedh Deorukhlar, economist, BBVA in Hong Kong.

Rising oil prices and a gradually tightening global rates environment pose new risks, he said.Speech

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