India's economy grew stronger than expected in Q1, domestic sector seen as the key driver

India's Q4 GDP grew at a robust 7.9% as against 7.2% (revised from 7.3% earlier) in Q3 of FY16 . The domestic sector was the key driver, dominated by private consumption which showed a robust 8% growth, up for the 2nd consecutive quarter. The figures from India’s statistics office also showed GDP grew 7.6 per cent in the 2015/16 fiscal year that ended in March.

Data  puts India well and truly as the fastest growing economy in Asia, strongly in contrasts with neighbouring China, where growth slipped to 6.7 in Q1– the slowest posted by the world’s second largest economy in seven years. The latest GDP data reinforced expectations that the Reserve Bank of India (RBI) is likely to keep its policy interest rate on hold at a scheduled policy review on June 7 as it waits for banks to fully pass on the previous the benefits of earlier cuts to borrowers.

That said, the Indian economy that still has plenty of challenges, both in the short term and the longer term structural issues. The cyclical rebound is also seemingly at odds with the weakness in the monthly industrial production and export numbers.

"Today’s remarkably strong GDP data is hard to believe. As we have cautioned since the release of the revised GDP series last year – we should take the official GDP data, and the rates of growth they are suggesting, with a pinch of salt,” warned Capital Economics’ Shilan Shah.