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Economy

Indian economy grows 5.7% on hopes for new government

MUMBAI -- India's real gross domestic product grew 5.7% on the year in the April-June quarter, reflecting the surge in consumption and investment brought on by the inauguration of Prime Minister Narendra Modi.

     Growth beat the 5% mark for the first time in three quarters. Consumer spending, which accounts for around 60% of GDP, rose 5.6%, a 0.8-point improvement from last fiscal year's 4.8% increase.

     This is the first data that reflects change in economic conditions following the launch of the Modi administration. An executive at Nissan Motor's Indian arm says the new government not only altered consumer sentiment, but also fueled investment by dealers. Monthly new-car sales had declined on the year for 18 months since December 2012, but they have been in positive territory since June.

     A number of businesses are starting to sense a recovery in domestic demand. The manufacturing sector grew 3.5% after an overall decline last fiscal year. The electricity, gas and water supply sector showed particularly sharp growth for the quarter at 10.2%. Gross fixed capital formation, a gauge of asset creation and investment, fell in fiscal 2013, but rose 7% on the year last quarter.

     GDP growth sank to the 4% range in fiscal 2012 and 2013, but many predict it will bounce back this fiscal year, which ends March 31. The government projects growth of 5.4% to 5.9% for fiscal 2014. Earlier this month, Nomura Securities upgraded its full-year estimate to 6% from 5%.

     But there is cause for concern. Rainfall during this year's summer monsoon season has been 18% less than average, according to the India Meteorological Department. This could reduce agricultural yields, hurting India's economy. Food prices could climb, putting a damper on spending in rural areas, which house 70% of India's population.

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