NEW DELHI: India posted surprisingly strong quarterly economic growth of 4.8 percent on Friday, on the back of robust farm output, but hopes of a sharp recovery before next year's elections still appeared faint.
The data for the second financial quarter to September beat market forecasts of 4.6 percent annual growth and topped the 4.4 percent expansion India logged in the previous three months.
"Growth appears to be bottoming out," said Miguel Chanco, economist for research house Capital Economics.
But "India's road to recovery will be slow and bumpy," Chanco cautioned, forecasting a "relatively subdued" upturn.
It was India's fourth straight quarter of below five-percent expansion. Growth has crumbled from nearly double-digit expansion just two years ago, a level economists say India must reach again to generate jobs for its vast young population.
Still, the figures were a respite for the scandal-tarred Congress party-led government, which is desperate to revive the economy before elections due by May.
Opposition prime ministerial candidate Narendra Modi bills himself as the sole leader who can steer India's growth back into the fast lane duplicating the economic success story in his home state of Gujarat where he is chief minister.
Finance Minister P. Chidambaram said the economy is going through a "period of stress" but "we're confident of coming out of it and returning to the high growth path".
He forecast growth would rebound to six percent next year and seven percent the following year.
Economists credited the improved quarterly performance to a bigger harvest from India's best monsoon in half a dozen years.
Agriculture output climbed in the quarter by a sturdy 4.6 percent from a year earlier.
But India's rural hinterland accounts for only one-third of gross domestic product, not enough to haul the economy out of its rut, economists say.
Manufacturing output expanded by a tepid one percent, but was better than the April-June quarter when it shrank by 1.2 percent. Higher exports, thanks to a sharply weaker currency, were a major growth driver.
The numbers suggest "underlying growth conditions are not as weak as previously feared", said HSBC economist Leif Eskesen.
Growth fell to a decade-low of five percent in the fiscal year to March 2013. The government forecasts 5.0-5.5 percent expansion this year but economists see growth in the four-percent range for the first time since 2003.
The quarterly data shows "though the economy is looking up again, the stress in some key segments is still there", said Rana Kapoor, president of the Associated Chambers of Commerce and Industry of India.
Tight fiscal policy and two recent interest rate hikes to tame inflation riding at seven percent "will impact recovery in coming quarters", Barclays economist Siddhartha Sanyal said.
Goldman Sachs predicts further increases in the lending rate to 8.5 percent next year from a current 7.75 percent.
The central bank has set its sights on taming inflation, fuelled by costlier imports to bottlenecks in the antiquated distribution chain.
Chidambaram, meanwhile, has vowed to cut the fiscal deficit to a six-year low of 4.8 percent this year, implying a growth-dampening clamp on public spending.
The "stepped up efforts to squeeze spending to meet the fiscal deficit will make it difficult to achieve a further pick-up in annual growth in coming quarters", said HSBC's Eskesen.
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