India's economy expanded a larger-than-expected 7 percent during the three months ended March 31 from the comparable period last year, as consumer spending continued to spur growth in the subcontinent.
India's gross domestic product has recorded some of the highest growth in the world this year as the country's consumer class is spending more on everything from cars to cell phones, analysts said.
"Consumer spending continues to be the mainstay," to economic expansion, said Andrew Holland, executive vice president of research at DSP Merrill Lynch in Bombay. "People are spending more because they have more money, and with low interest rates they are borrowing more."
India's GDP growth for the full fiscal year ended March 31 was 6.9 percent.
Analysts had expected the fiscal fourth-quarter growth to be about 6.8 percent.
They said that agricultural growth, while down sharply from a year earlier, was still above expectations.
Agricultural expansion during the quarter was 1.8 percent, down from 10.4 percent in the same quarter last year. Manufacturing growth increased to 8.6 percent from 7.6 percent, while finance and property-services growth accelerated to 7.7 percent from 7.6 percent.
Analysts and fund managers said there was nothing in the growth figures to suggest India's central bank needs to increase interest rates further to cool down the economy yet. The Reserve Bank of India raised its key reverse repurchase agreement rate twice during the past year. It last increased the rate by a quarter percentage point, to 5 percent, in April.
While many economists expect the central bank to raise the reverse repo rate by an additional half percentage point during the next nine months, it might not do so during its meeting scheduled for late next month, said Anantha Nageswaran, founder and director of Singapore-based Libran Asset Management.
"The central bank won't be inclined to rock the boat now," as inflation is under control, he said. "I don't think they will raise the rates as the inflation is well behaved despite high oil prices."
India's inflation rate has come down from more than 8 percent a year ago to hover close to 4 percent recently.
Analysts are projecting between 6 and 8 percent GDP growth for the fiscal year that started April 1. While consumer demand this year is still strong, analysts warn that growth could decelerate as infrastructure bottlenecks slow industrial expansion and insufficient monsoon rains hurt agricultural production.
With the Jumonsoon arriving late in many important agricultural regions of India and industrial-production growth slowing, some of the biggest India optimists are reconsidering their growth projections for the year, said Holland at DSP Merrill Lynch. While Merrill is forecasting 7.6 percent GDP growth this fiscal year, "concerns that the monsoon and industrial-production figures have been weaker than expected mean that [projection] might be on the high side," he said.
V. Ramakrishnan contributed to this report.