Annual growth rate averages 9.4 per cent to March, highest since 1989. Government now has to tackle inflation. Middle class is estimated at 300 million.

New Delhi (AsiaNews/Agencies) – India’s economy expanded at an annual rate of 9.4 per cent to March, the biggest gain since 1989, the Central Statistical Organisation reported yesterday. Like the economy, the country’s middle class has also grown and now is almost the size of the population of the United States.

In the first quarter of this year, the economy grew 9.1 per cent, higher than the average quarterly pace of 8.8 per cent of the past two years and, among the world’s leading economies, second only to China’s growth rate.

This has stoked demand for manufactured and farm goods and pushed inflation to a two-year high in January, which is affecting disproportionately food prices and the poorer segments of the population.

The Reserve Bank of India raised its key rate seven times in the past 18 months to its highest level in five years to tame price gains and loan growth. This helped ease inflation to an eight-month low of 5.27 per cent in the second week of last month.

For experts this should help prepare the economy for a soft landing. But it still “should expand at about 8 per cent or more,” said Navneet Munot, a fund manager at Birla Sun Life Asset Management, a leading asset management company.

One consequence has been that car sales in the past two months have grown at a slower pace. Almost 75 per cent of cars sold in India are financed by commercial banks. And yet manufacturing gained 12.4 per cent in the last quarter of 2006.

The Indian rupee has gained 8 per cent against the US dollar since January 1, slowing down the pace of growth of exports, which rose 8.8 per cent in March, a third of what it was over the past year.

But everyone agrees that disposable middle class incomes and consumption levels are rising.

A study by the McKinsey Global Institute paints in fact a rosy picture for India. Its new report released in May predicts that India's much-touted middle class has finally taken wings and will soon embark on a consumption spree that could reshape global consumer markets.

India’s income level should triple over the next 20 years, lifting 291 million Indians out of poverty to create a 583-million-strong middle-class population by 2025.

Adjusted for inflation, the average per capita annual income of a typical middle-class Indian family was about 0 in the early 1990s. A family that could afford a balanced diet each day, send the children to school and, say, buy a small refrigerator was considered middle-class in India. Now that is likely to change.

The largest Indian spending category at present remains food, beverages and tobacco (FB&T), followed by transportation and housing.

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• middle
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