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Updated Wednesday, September 1, 2010 1:56 pm TWN, By Erika Kinetz, AP



	In this May 31 file photo, an Indian laborer works in a factory in Dholka, outskirts of Ahmadabad, India. India's economy grew 8.8 percent in the June quarter, announced Tuesday, Aug. 31, its fastest pace in over two years, as good farm and manufacturing output lifted growth back to its pre-crisis trajectory. (AP) Enlarge Photo

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India's economy grew 8.8% in June quarter

India has been sheltered from the global storm by strong domestic demand and rising wages, but Shukla says consumer spending has been restricted to the rich and middle class, who are splurging on cars, two-wheelers and plasma televisions. Basic consumer goods — like shampoo and soap, which India's poor buy in small, super-cheap packets — have not seen a comparable uptick.

Headline inflation during the quarter was 10.6 percent. That has hurt India's poor the most, because they spend a greater slice of their income on food, which has seen the worst price rises.

Shukla says that though India is far less dependent on exports than neighbors like China, some 40 percent of industrial production is influenced by external factors, like commodity prices and export demand.

In addition, as Indian giants like the Tata group — now the U.K.'s largest manufacturing employer — and the Essar group — whose Essar Energy debuted on the London Stock Exchange in May — start to realize their global ambitions, they become more vulnerable to demand and credit conditions in the U.S. and Europe.

“It's important for India now to maintain this growth trajectory,” Shukla said. “If we fail, India will see a problem in the sheer number of people lacking goods and necessities. Unless we grow at 8 percent plus, we're looking at a grim scenario.”

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