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  • Kiran Stacey & James Kynge

India regains title of world’s fastest-growing major economy

Annualised jump of 7.2% in final quarter of 2017 overtakes China

India has regained its title as the world’s fastest-growing major economy, after figures confirmed it grew more than 7 per cent on an annualised basis in the three months to December, overtaking China after a year of lagging behind.

Data released on Wednesday show the Indian economy grew at an annual rate of 7.2 per cent in the final quarter of last year, continuing its bounceback from a sharp slowdown in the middle of 2017. The Chinese economy grew 6.8 per cent on an annualised basis in the same period.

The new figures came on the same day Beijing announced that last month its official gauge of manufacturing activity suffered its largest fall in seven years, a reflection of an economy that analyst believe is set to slow this year as the government focuses on mitigating financial risks.

Although China’s economic growth accelerated to 6.9 per cent last year, several signs of slowing momentum have started to emerge, led by a fall in property sales and prices in many large cities in January. The manufacturing index showed small and medium-sized enterprises particularly hard hit.

Chinese statistics are influenced to an uncertain degree in January and February by Chinese new year, which results in widespread factory closures. This year, as in 2017, the holiday fell in February.

Still, India’s return to robust growth is a boost for Narendra Modi, India’s prime minister who built his political reputation as a steward of the economy, after a year of intense pressure following the slowdown, which comes ahead of a general election due next year.

The uptick also comes as a welcome relief for Mr Modi after a week in which his administration has been attacked for failing to prevent a $1.8bn fraud at the state-owned Punjab National Bank.

“India’s GDP growth momentum continues strongly & sustainably,” Piyush Goyal, the railways minister and Modi ally, wrote on Twitter, touting the country’s return as the “the fastest growing large economy in the world”.

Pronab Sen, the country’s former chief statistician, said the figures, boosted by a rebound in the construction sector, were “very strong — much stronger than expected”.

Mr Modi came to power in 2014 promising economic reforms that would help boost the economy and create 10m jobs a year, just shy of the estimated 13m India needs to account for the number of young people entering the workforce each year.

But his record came under fire following his sudden decision in 2016 to cancel most of the country’s banknotes, followed by a botched attempt to reform the country’s complex sales tax system.

The problems arising from both moves helped knock the Indian economy off course last year, as it fell from 9.1 per cent growth in the first quarter of 2016 to just 5.7 per cent in the three months to June 2017.

Earlier this month, Arun Jaitley, the finance minister, attempted to mitigate some of the effects of the slowdown by announcing a Budget that included higher minimum prices for farmers and free health insurance for 100m poor families.

The slowdown was reversed in the third quarter of last year, and Wednesday’s data showed the improvement continued in the following three months.

The recovery in construction, which expanded 6.8 per cent, was particularly pronounced. The sector had been hit hard after demonetisation; many of India’s property deals had been paid in cash as a way to avoid tax.

Manufacturing, meanwhile, grew 8.1 per cent, while the country’s important agricultural sector was 4.1 per cent larger.

Earlier in the day, credit rating agency Moody’s had said it expected India to grow 7.6 per cent in 2018. “There are some signs that the Indian economy is starting to recover from the soft growth patch attributed to the negative impact of the demonetisation undertaken in 2016 and disruption related to last year's rollout of the goods and services tax,” the agency said.

The International Monetary Fund has forecast India will grow 7.4 per cent in 2018 and 7.8 per cent in 2019.

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