India’s GDP grew 7.2% in the third quarter, surpassing expectations and wresting back the mantle of fastestgrowing economy from China on the back of a rebound in industrial activity, especially manufacturing and construction, and an expansion in agriculture. China grew 6.8% in the quarter — and is expected to grow at that pace for the full year.Experts also pointed to the growth in gross fixed capital formation (GFCF) as a sign that investment, which has been a laggard, may be resurgent, although the slowing of private consumption was a concern. The numbers indicated that the economy had shaken off the effects of demonetisation and come to grips with the goods and services tax (GST), they said. India ’s FY18 growth projection was revised marginally upward to 6.6% from 6.5% estimated earlier, compared with 7.1% in FY17, according to data released by the ministry of statistics and programme implementation on Wednesday. Second-quarter growth was revised to 6.5% from 6.3% earlier. Economists had estimated December quarter GDP growth at 6.5-6.9%.“Robust growth in manufacturing and significant acceleration in construction mark a turnaround in the country’s economic growth momentum,” the finance ministry said in a release. “Heralding an improvement in the investment climate, real gross fixed capital formation is estimated to grow at a robust 7.6% for 2017-18, accelerating from 6.9% in Q2 2017-18 to 12% in Q3 2017-18.”The revival theme was backed up by core sector growth, which picked up pace in January following an uptick in sectors including cement, electricity, coal, refinery products and steel, indicating a strong start to the last quarter of FY18. The combined index of the eight core industries rose 6.7% in January 2018 compared with 4.2% in December 2017, according to data released separately by the government.India’s manufacturing activity meanwhile fell to a four-month low in February but remained firmly in the expansion zone as firms raised staffing levels, according to the Nikkei India Manufacturing Purchasing Managers Index (PMI). It’s the seventh consecutive month that the index has remained above the 50-point mark, which separates expansion from contraction. The index touched a 60-month high of 54.7 in December.“The current growth rate reflects that reforms by the government have started showing results,” Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister said. The GDP trend is consistent with the robust growth of PMI, Index of Industrial Production (IIP) and consumer demand, he said, adding, “Higher growth in industries, services and central government spending to aid further growth.”Manufacturing grew 8.1% in the third quarter and is projected to expand at 5.1% for the full year, compared with 7.9% growth in FY17, indicating that factories and companies have come to terms with GST, which was put in place on July 1.The Reserve Bank of India will likely keep rates unchanged, said DK Pant, chief economist, India Ratings, a Fitch Group Company.Beyond that, it will consider factors such as the monsoon, banks’ bad loans and oil prices, he said.“While a 12% growth in fixed capital formation pulled up GDP growth, the need of the hour is how we can nurture this budding investment revival with conducive policies,” he said. “However, an area of concern is the decline in private consumption growth to 5.6% in 3QFY18 from 6.6% in 2QFY18. Ind-Ra believes growth momentum will spill over in FY19 and the GDP growth will be 7.1%.”The next meeting of the RBI monetary policy committee will take place in early April.The GFCF number reflected stepped-up government spending that will crowd in money from non-state sources, another expert said.“Though excellent GDP numbers have come on the back of the low base of Q3FY17 (demonetisation quarter), it signifies that the economy is recovering and expanding at a reasonable speed before picking up the pace in the near future,” said Arun Thukral, CEO, Axis Securities. “Also, growth in gross fixed capital formation (GFCF) in nominal terms is indicative of increased investment happening, especially from the government side, which eventually will lead to higher private spends over the next 12-18 months.”Growth started to pick up in the July-September quarter within the April-June period due to destocking in the run-up to the GST rollout and the lingering impact of demonetisation.The Economic Survey had projected that a series of major reforms undertaken over the past year will allow real GDP growth to rise to 7.5% in FY19, thereby reinstating India as the world’s fastestgrowing major economy. Some experts said India could exceed the International Monetary Fund’s 6.7% GDP growth estimate for the current year if the recovery trajectory improves even further, possibly allowing it to retain the fastest-growing economy title.“There is quite a lot of project activity on ground led by government investment, which has shown traction and feeds through to manufacturing,” said HDFC Bank chief economist Abheek Barua.“This might be a sustainable growth path. We are beginning to see an upturn in the cycle. The probability of revising FY19 growth number has increased.”The IMF projects India’s GDP to grow at 7.4% in FY19 and 7.8% in FY20. The last time India grew faster than China was in October-December 2016, Reuters said. “The significant improvement in GDP growth… strengthens the perception that the Indian economy is at the threshold of a sustained rebound in growth,” said Confederation of Indian Industry director general Chandrajit Banerjee.“Manufacturing and some services sub-sectors are the key drivers of growth during the quarter.”Anil Khaitan, president, PHD Chamber of Commerce and Industry, said: “The GDP growth at 7.2% in Q3 of 2017-18 is inspiring and strong signs of economic revival are visible. Going ahead, we believe the growth trajectory should continue to improve as teething problems of GST are almost over and the economy is looking up once again.”