India's middle class drives economic growth of 8.8%

Resurgent consumption by India's growing middle class helped to push the country's growth up to 8.8 per cent in the past quarter – the highest rate in more than two years.

Economists said good farm and manufacturing output also helped to restore the country's growth to the trajectory it was riding on before the international financial crisis. Before the recession, India's economic expansion averaged nearly 9 per cent but this time last year, it had fallen to around 6 per cent.

India has been sheltered from the global storm by strong domestic demand and rising wages. Yet experts say the country's consumer spending has been restricted to the rich and middle class, who are splashing out on cars, motorbikes and televisions. Basic goods, such as soap and shampoo which are often sold in small packets that cost just one or two rupees, have not been selling at the same pace. The poor have also been hurt by inflation during the past quarter of more than 10 per cent. The 600 million Indians who live on less than $2 a day are hurt the most because they spend a greater portion of their incomes on food, which has seen the worst price rises.

As a result, despite the glittering headline numbers, economists say consumer demand remains narrow and the shadow of global economic uncertainty is holding back capital spending and could disrupt industrial production and credit growth.