Encouraging figures from India?

Hugh Young, managing director of Aberdeen Asset Management Asia, comments: "India's economy grew by 7.9% year-on-year in the third quarter, far exceeding Bloomberg's consensus forecast of 6.3%. Although initial reports have cited this as an indication of strength in the economy which will allow the government to withdraw monetary and fiscal stimulus in a less disruptive fashion, a closer look at the numbers reveals some lingering underlying weakness.

"While fixed capital formation grew by a very encouraging 7.5% the main reason for the better-than-expected overall number was the sharp fall in the current account deficit due to the collapse in imports. As a percentage of GDP imports fell to 20.0% from 30.4% a year earlier, while exports fell to 15.8% from 19.8%. Some of this fall is no doubt attributable to India's progress in replacing imports with domestically produced goods, but much of it will have been due to one-off factors such as inventory adjustment that will not contribute to the same extent in coming quarters.

"That said, we are encouraged by the numbers as although they may not be quite as good as they at first appear, they are still much better than those of most other countries around the world, reflecting the strong momentum behind the country's domestic economy and the country's relative lack of dependence on external demand. We see little reason why growth in excess of 5% cannot be maintained at least through 2010."