India's economy bounces back from slowdown

Expanding India's access to dental care
Expanding India's access to dental care

India's economy has bounced back from a year-long slowdown, but not enough to regain the global growth crown from China.

Gross domestic product grew by 6.3% in the three months through Sept. 30, up from 5.7% in the previous quarter. That compares with China's growth rate of 6.8% in the same period.

Still, the numbers will be music to the ears of Indian Prime Minister Narendra Modi, whose two biggest policy decisions of the past year have been widely blamed for a slump that cut growth to its slowest pace in three years.

India was the world's fastest growing major economy at the end of 2016, with GDP expanding by 7%.

But the sudden ban last November of India's two most valuable rupee notes at the time -- accounting for 86% of the country's cash -- stunned industry and brought activity in some sectors of the economy to a screeching halt.

An overhaul of the country's tax system in July, replacing myriad state levies with a single set of national rates, dealt business another blow, even if it should help the economy in the long run.

Related: What did Modi get wrong with India's economy?

India appears to have put those troubles behind it for now.

The stronger growth "indicates that perhaps the impact of two very significant structural reforms... is now behind us, and hopefully in the coming quarters we can look for an upwards trajectory," Finance Minister Arun Jaitley said at a press conference shortly after the data was released.

"I think the most significant aspect is the fact that this quarter's positive result has been impacted significantly by the growth in manufacturing," he added.

"The improvement in industry is eye-catching," Priyanka Kishore, lead Asia economist at Oxford Economics, told CNNMoney.

Kishore added that India's national tax overhaul continues to drag on growth, but the economy appears to have shrugged off the effects of the cash ban.

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The reversal in India's fortunes should be sustainable, economists predicted.

"Growth will continue to accelerate over the coming quarters," wrote Shilan Shah, India economist at Capital Economics, in a note.

"Recovery is underway," Oxford Economics' Kishore said. "Next year we should be looking at these headwinds turning into tailwinds for the economy."

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