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Last Updated: Wednesday, 31 May 2006, 13:39 GMT 14:39 UK
India accelerates economic growth
Bombay Stock Exchange on Dalal Street
Economic growth helped the markets recover slightly
India's economy has beaten expectations by growing at an annual rate of 9.3% in the first three months of 2006.

Agriculture, which makes up one-quarter of the economy, showed a healthy 5.5% increase in the quarter, the Central Statistical Organisation said.

The news comes amid sharp falls for India's stock markets, fuelled by fears of a cooling US economy.

The Sensex index ended the day down 3.6%, amid worries that rapid growth could mean higher interest rates.

In a bad market like this people often ignore good news
Ajit Surana, managing director, Dimensional Securities

On a year-by-year basis, India's economy grew by 8.4%, beating the government's forecast of 8.1%.

"In a bad market like this people often ignore good news," said Ajit Surana, managing director of brokerage Dimensional Securities.

The growth spurt means India is approaching China's growth rate of between 9% and 10%.

'Reforms needed'

As urban Indians have become richer, benefiting from the stronger economy, they have had more money to spend on consumer and housing goods.

But economists are concerned that India's growth will be limited if public sector investment in infrastructure, including ports, airports, roads and power supplies, is not increased.

The finance minister, P Chidamabaram, has warned that without more reforms growth may not be sustained.

Some analysts are saying that recent falls on Indian stock markets are merely a correction, after a period of rapid gains.

Nonetheless, there are fears that more foreign investors might withdraw if stocks continue to decline.

The rupee fell to its lowest level against the dollar in three years on fears of equity withdrawal.

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