India's Economy Grows 9.3 Pct in 1Q

NEW DELHI (AP) -- India's economy expanded by a faster-than-expected 9.3 percent in the first fiscal quarter as manufacturing output and services grew, the government said Friday.

The growth in the April-June period versus a year ago topped an average growth forecast of 8.9 percent by analysts surveyed by Dow Jones Newswires.

The expansion came despite money tightening measures from the central bank to dampen new investments and moderate growth. The latest data suggested momentum seen in the past year was nevertheless continuing.

India's gross domestic product grew 9.4 percent in the fiscal year ended in March, its strongest annual growth in 18 years, but the rapid expansion also came with higher inflation that stoked fears of overheating.

Those worries may persist as economic growth in the most recent quarter was faster than the 9.1 percent increase in the January-March period.

But the government released price data Friday showing the inflation rate based on wholesale prices dropped to 3.9 percent in the week ended Aug. 18 from 4.1 percent in the preceding week. Inflation had risen to a two-year high of 6.7 percent in February.

In the economic growth report, manufacturing output expanded 11.9 percent in the April-June period, and services grew 10.6 percent. Agriculture, which continues to be a drag on the broader economy, did better than expected, growing 3.8 percent during the quarter.

The figures boosted sentiment in the stock market, and the Bombay Stock Exchange's 30-share Sensex index rose 1.3 percent to 15,319 points Friday.

"The numbers are better than expected ... the growth momentum continues to be strong," said Rajeev Malik, a Singapore-based economist with JP Morgan Chase Bank.

Malik expects "some moderation to set in later this year" due to a lagged impact of higher interest rates and a deceleration in exports caused by a stronger rupee.

The rupee rose about 7 percent during the April-June quarter and has since remained near a nine-year high. A stronger rupee reduces the value of the foreign earnings of Indian companies and makes their exports less competitive abroad.

Still, JP Morgan planned to revise its full-year growth forecast for the Indian economy to 8.6 percent from 8 percent earlier, Malik said.

The reported moderation in wholesale price increases in mid-August may discourage the central bank from introducing more money tightening measures in the coming months, analysts said.

Earlier this month, the Reserve Bank of India increased the cash reserve ratio -- the proportion of deposits that commercial banks must hold in cash -- to 7 percent from 6.5 percent, sucking out surplus cash of about 160 billion rupees ($4 billion) from the banking system.

It has also increased its key short term lending rate by a total 0.75 percentage points in the past year in its efforts to cool the economy.

Finance Minister P. Chidambaram said he was hopeful the economy will grow close to 9 percent for the full fiscal year, making India the fastest growing economy after China.