Big Spending on Infrastructure Powers India’s Growth

NEW DELHI—India’s economic growth accelerated in the most recent quarter, fueled by a government push to pave roads, expand railroads and upgrade the power grid.

The South Asian nation reported that gross domestic product grew 8.4% over the previous year in the quarter that ended in December, picking up from the 8.1% in the preceding quarter.

Economists said heavy infrastructure spending is lifting India’s economy, which continues to outperform other major economies. In early February, New Delhi unveiled an annual budget that earmarked nearly $134 billion for infrastructure projects nationwide, up about 11% from a year earlier.

“It is a combination of government consumption and public capital expenditure that is driving growth,” said Aurodeep Nandi, an economist with Nomura in Mumbai.

Domestic consumption has picked up among wealthy Indians, especially during the last three months of the year which spans the wedding season and a number of key festivals, economists said. Several Indian automakers have reported record sales in January, with total domestic passenger-vehicle sales climbing 37.3% compared with the previous month, according to the Society of Indian Automobile Manufacturers.

But inflation continues to bite into the spending power of lower-to-middle-class consumers. While overall retail inflation eased slightly in January to 5.1%, after two months of back-to-back upticks, food prices jumped by 7.6%.

Ashok Kumar, a 43-year-old personal driver in New Delhi, said the high costs of staple foods are cutting into his family’s budget. “Prices of tomatoes and onions are shooting up but incomes are not going up,” Kumar said. “Can this be called good growth?”

His salary was recently slashed by 25% because his employers saw a decline in their garment business. Kumar said he wished the government would concentrate on improving the lives of ordinary people instead of bragging about national GDP growth.

“They think having 7% growth is the solution to all problems,” he said. “That’s a worrying attitude of the government.”

As India heads into a marathon season of state and local elections spanning over weeks, the health of the economy will be a topic hotly debated by Prime Minister Narendra Modi’s ruling Bharatiya Janata Party and opposition parties.

Modi, who is running for a third term as prime minister, has proudly pointed to India’s position as the world’s fastest-growing major economy. His political rivals have countered that economic growth hasn’t translated into a bonanza of new jobs.

In January, the International Monetary Fund raised its forecast for India for the fiscal year ending March 31 to 6.7% from 6.3%, and raised its forecast for the year ahead. The government on Thursday projected a slightly higher GDP growth of 7.6% for the current fiscal year.

Many economists expect that continued government spending, combined with consumption from the country’s wealthy, will keep driving the economy.

“Despite a disturbing global macroeconomic environment, the Indian growth story is on track to drive the global economy,” said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.

Write to Vibhuti Agarwal at [email protected] and Shan Li at [email protected]