MercoPress. South Atlantic News Agency

India outpaces China in economic growth boosted by domestic demand and manufacturing

Prime Minister Narendra Modi is focusing on reforms to boost growth and hopes to convince his opponents to implement a much-delayed sales tax in 2016.

India's economic growth picked up in July-September, outpacing China on improving domestic demand and manufacturing activity, and the acceleration could persuade the country's central bank to keep interest rates unchanged at its Tuesday meeting.

 The Reserve Bank of India (RBI) is expected to hold rates steady after a sharper-than-expected 50 basis point cut at its last meeting, as it looks to control price rises ahead of a tighter 2016 inflation target.

Asia's third-largest economy expanded by a 7.4% at annual rate in the second quarter of the 2015/16 financial year that ends in March, compared with 7% in April-June, the Statistics Ministry said on Monday.

China reported annual growth of 6.9% for the three months ended Sept. 30.

Stronger growth would be a boost for Prime Minister Narendra Modi after a defeat in state elections in India's third-most populous state of Bihar. Modi is focusing on reforms to accelerate growth and hopes to convince his opponents to implement a much-delayed national sales tax in 2016.

In the second quarter, investments grew 6.8% from a year earlier, compared with 4.9% in April-June.

The Indian government has front-loaded its budget spending, boosting investment in infrastructure to stimulate economic growth and complement private investment.

A drought in parts of the country for the second straight year has hurt farm output and rural wages, in turn hitting rural demand for farm machinery like tractors as well as consumer goods.

Private consumption growth slowed to 6.8% year-on-year in the second quarter from the first quarter's 7.4%. A hike of over 23% in the incomes of near 10 million government employees and pensioners from January could further boost consumer spending.

Although India's headline growth rate looks impressive, it is partly the result of changes to statistical methods that seek to capture more evidence of economic activity. Other barometers such as bank credit growth, jobs and consumer demand paint a less healthy picture, analysts say.

Sharp falls in the cost of oil and gold imports are reducing the trade deficit and giving a net boost to economic activity.

Manufacturing, which accounts for about 18% of the economy, grew 9.3% in the second quarter year-on-year, compared with 7.2% in the previous quarter. But exports of goods shrank by 17.5% in October from a year ago, the 11th straight monthly decline that prompted the government to extend subsidized credit to exporters.

India's fiscal deficit reached 4.11 trillion rupees ($61.67 billion) during April-October, or 74% of the full-year target, government data showed on Monday.