India's Manufacturing Sector Grows Sharply In Second Quarter

(AP) - India's economy grew a faster-than-expected 8.9 percent in the April-June quarter from a year ago, fueled by exports and strong domestic demand, the government said Friday.

That's an upturn from the previous quarter, when the economy grew 8.5 percent. Most analysts had projected the growth rate would remain the same in the April-June period, the first quarter of the current fiscal year.

The services sector, which accounts for over half of gross domestic product, grew 13.2 percent in the quarter, while manufactured output rose 11.3 percent, driven mostly by a surge in exports.

Agriculture grew 3.4 percent, unchanged from the growth it recorded in the same quarter last year.

The first quarter numbers prompted analysts to review their forecasts for the full fiscal year ending in March 2007, even though many expect the pace of expansion to moderate in the coming quarters.

The monsoon rains, which are crucial to a good harvest in this country with poor irrigation facilities, have been good and that is likely to sustain the growth momentum through the quarter, said Sunil Sinha, a senior economist at Crisil.

The economy's brisk expansion is also likely to encourage the central bank to further increase interest rates to rein in inflation without risking growth. The Reserve Bank of India is scheduled to unveil its biannual credit policy on Oct. 31.

Although rising middle class incomes have helped in keeping domestic demand robust, these have also fueled inflation, which has already been on the rise because of a surge in global oil prices. India imports three-fourth of the crude oil it processes.