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INDIA'S GDP EXPANDED AT FASTEST PACE IN 18 YEARS

By V. Phani Kumar

4:21 AM ET May 31, 2007

MUMBAI (MarketWatch) -- India's economy expanded at its fastest pace in 18 years
during the financial year ended March 31, led by a robust performance of its
manufacturing and services sectors, according to official data released Thursday. But
economists expect growth to moderate this year due to higher interest rates and a
strong rupee, said economists.

Data released by the Central Statistical Organization showed the gross domestic
product grew at 9.4% for the year, up from 9% in the previous year.

"The data is surely an indicator that the economy is moving in a sustainable fashion
towards a higher growth trajectory. It sends a positive signal to the international
community and should attract more capital and foreign fund inflows," said Rupa Rege
Nitsure, the chief economist at state-owned Bank of Baroda.

However, Nitsure added that the likely increase in foreign investment in the country
will "add to the upward pressure on the rupee" and hurt exports.

She also listed hardening interest rates amid high inflation as factors that could
moderate the GDP growth to a range of 8%-8.5% during the current financial year.

The rupee has been strengthening against the U.S. dollar over the past few months
because of strong portfolio and capital investments, making exports from India
relatively more expensive and slowing growth in certain sectors. The dollar traded at
40.71 rupees on Wednesday from a three-year high of 47.04 rupees in July 2006.

Since December 2006, the Reserve Bank of India has raised the reserve requirement
for banks by 1.5 percentage points to 6.5%. It has also raised the repo rate - at
which it lends to banks - by 1.5 percentage points to 7.75% since January 1, 2006
amid high inflation.

"The growth is slightly above estimates and shows that the growth momentum has not
been dented by the tightening measures by the central bank... but there is a slowdown
in interest rate-sensitive sectors such as construction," said D.K. Joshi, principal
economist at ratings agency Crisil.

Joshi said Crisil expects India's GDP growth to moderate to between 7.9%-8.4% this
year.

During the fourth quarter ended March 31, India's GDP grew 9.1% in the fourth
quarter, higher than the 8.7% growth posted during the quarter ended Dec. 31, but
lower than the 10% growth achieved in the year-ago period.

Economists had expected growth of 9.4%, according to a poll of analysts by Dow Jones
Newswires.