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Indian economy grew 7.4% in year ended March

India's economy grew by a healthy 7.4 percent in the year ended March, 0.2 percent above the government's forecast, powered by strong performances in the manufacturing and service industries.

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AFP - India's economy grew 7.4 percent in the year ended March, official data showed Monday, but analysts said uncertainty in the global outlook meant the government was in no rush to raise interest rates.

The strong growth data, which also showed 8.6 percent year on year growth in the fourth quarter, was boosted by stellar performances in the industrial and service sectors and comes as inflation is running at almost 10 percent.

However, concern over the eurozone debt crisis and the hopes for the coming monsoon are likely to dissuade the Reserve Bank of India (RBI) from hiking the cost of borrowing, experts said.

"We expect no upward revision in rates at the next meeting," said Ritika Mankar, economist with financial services firm Executive Noble, after the central bank last week announced fresh measures to boost liquidity.

Data released Monday by the Central Statistical Organisation (CSO) showed the manufacturing sector grew 10.8 percent in the year and the construction and utilities sectors by 6.5 percent each.

The transport and communications sector saw 9.3 percent growth.

The country has recorded seven straight months of double-digit expansion in industrial output.

In the vital farm sector, the CSO said the ministry of agriculture had revised upwards its crop production estimates for key commodities such as rice, wheat, cotton and sugarcane.

The data showed agricultural growth at 0.2 percent for the full year against official estimates of negative 0.2 percent.

Agriculture accounts for 15 percent of India's gross domestic product and though its share is falling, the sector's health is vital to the economy as some 60 percent of India's 1.1 billion people rely on it for a living.

Another factor influencing any RBI policy decision will be the onset of the monsoon rains that sweep the country from June to September. If strong, the rains will bring down food prices.

Last year's monsoon, the weakest in nearly four decades, hit agriculture output, sent the cost of food soaring and caused widespread hardship.

Reacting to the data on Monday, Indian Finance Minister Pranab Mukherjee told reporters: "I expect the current economic momentum to remain."

He said he expected the economy to grow 8.5 percent in the fiscal year to March 2011.

Prime Minister Manmohan Singh said last week that the Indian economy, which has been opened up to global trade in the past 15 years, must record 10 percent growth every year if its severe poverty problems are to be tackled effectively.

The central bank has kept its monetary policy stance "accommodative", which is designed to stimulate growth while seeking to tame inflation.

India's year-on-year inflation cooled slightly in April which also eases pressure on the central bank to hike interest rates immediately.

Wholesale price inflation, the country's main cost-of-living measure, slipped to 9.59 percent last month from 9.9 percent in March.

The RBI hiked its key interest rates by a combined 50 basis points in March and April, and has begun unwinding monetary stimulus measures used to shield the country from the global downturn.

Economists told AFP they expect a further 50-75 basis points rise in short-term rates before next March in order to manage non-food prices.

Analysts said they were confident India could clock more than eight percent growth in the year to March 2011.

Rupa Rege Nitsure, chief economist with state-run Bank of Baroda said she expects the momentum to continue this year, with help from improved farm output led by a normal monsoon.

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