31 August 2010 Last updated at 07:31 ET

India growth rate rises to 8.8%

India is the world's second fastest-growing economy

India's economy grew at its fastest rate for more than two years in the last quarter, according to official data.

In the three months to June, GDP was up 8.8% compared with the same period last year.

Although only the 11th biggest economy in the world, India is the second fastest-growing, behind China.

Strong industrial and mining output helped boost the growth rate, India's statistics agency said.

Industrial output rose more than 12%, while mining and quarrying jumped nearly 9%.

Services including hotels and banking also did well, with output up nearly 10%.

Services account for 55% of India's economy, while industry makes up around 25% of output.

In July, the Reserve Bank of India said it expected annual growth for the current financial year to come in at about 8.5%.

Analysis

Andrew Walker Economics correspondent, BBC World Service

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One of the key factors underlying India's performance was strongly rising sales of goods at home, to Indian consumers.

By contrast, in a developed economy such as Japan, that element actually declined.

That divergence is consistent with a wider global pattern.

For the most part, developed economies are growing only moderately and many of them are increasingly beset by fears of another recession.

Developing countries are growing more strongly, fuelled partly by a rising group of consumers spending money on the goods and services produced by local firms.

The rise of the Asian consumer and trade among developing countries has provided some, though not complete, shelter from any economic storms that might arise in the US or Western Europe.

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But the bank has also said bringing down inflation remains a priority.

The inflation rate topped 11% last month and the strong performance in the economy is expected to encourage policymakers to continue raising interest rates.

Growth to slow

So far this year, the central bank has raised interest rates four times in a bid to curb inflation.

Economists expect further rises and many expect them to slow India's economic growth in the coming months.

"We don't expect this growth rate to be as strong over the next two quarters," admitted Deepak Gopinath, a director at Trusted Sources Research.

"Having said that, among the Bric economies [Brazil, Russia, India and China], India is well placed to sustain strong growth. It is less dependent on developed countries than the others."

Chandrajit Banerjee, director general of the Confederation of Indian Industry, agreed that domestic demand was important for India's economy.

"With renewed pessimism on the extent of the recovery of developed economies, the Indian economy needs to depend on domestic drivers for growth," he said.