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India's Economic Growth Returns to Pre-Global Financial Crisis Levels


India's rate of economic growth is returning to the high levels of the years prior to the global financial crisis. But there are concerns high inflation could slow down the momentum.

The latest growth numbers have brought good news for India. The economy grew by 8.6 percent in the first three months of the year.

This is the fastest pace since the global financial crisis triggered a slowdown, abruptly ending the boom that India had been experiencing prior to 2008.

The overall growth rate for the fiscal year that ended in March is 7.4 percent - higher than government estimates.

A rebound in the manufacturing sector has triggered the economy's momentum. Consumers are buying homes and cars. An optimistic industry has started drawing up expansion plans.

Anjan Roy, an economist with the Federation of Indian Chambers of Commerce and Industry, says strong domestic consumption has been the key to the revival of the Indian economy. But he warns this may be affected by any interest rate increases in the coming months.

"There is increasing talk of a squeeze on liquidity and rise in interest rates. This talk is unnerving the manufacturing sector. Then demand will fall and manufacturing development, growth will be affected," he said.

The government is under pressure to raise interest rates to control a massive rise in food prices, which is hurting ordinary people.

Economists say much will depend on annual monsoon rains, which come between June and September. Last year's low rainfall led to smaller crops and triggered the high food prices. But forecasts that monsoons will be normal have raised hopes that a good harvest this year could lead to a fall in prices.

The debt crisis affecting several European nations is also a key concern. Economists say the flow of foreign investment funds will slow down if the European crisis undermines global growth. Europe is also a key trading partner for India, accounting for one fifth of its exports.

But despite the concerns, there is optimism the economy will post even stronger growth this year. Policy makers say high growth is critical if the country is to tackle widespread poverty among its 1.2 billion people. India is among the world's fastest growing economies, but millions of people still live on less than $2 a day.

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