India’s economic growth has accelerated to 6.1 percent in the January–to-March quarter, boosted by government and private capital spending even as private consumption remained sluggish, government data shows.

Wednesday’s reading showed India remains one of the fastest growing emerging economies, especially with China’s post-pandemic recovery stumbling.

Despite risks emerging from a global slowdown, the government expects growth to be about 6.5 percent for the current fiscal year, which began on April 1.

“The risks are evenly balanced between the downside and the upside,” V Anantha Nageswaran, chief economic adviser at the finance ministry, told reporters after the data were released.

He said indicators such as car, steel and power consumption for April showed a pick-up in activity and a sustained growth momentum.

Asia’s third-largest economy expanded faster than a forecast of 5 percent expected by economists questioned for a Reuters news agency poll in the last quarter of the 2022-2023 fiscal year, up from a revised 4.5 percent in the previous quarter.

The full-year growth estimate was revised up to 7.2 percent from an earlier estimate of 7 percent. India’s economy grew 9.1 percent in the 2021-2022 fiscal year.

Economists, however, warned that the global slowdown and volatility in financial markets pose a risk to exports and the potential for growth in the coming quarters.

“The growth outlook is [not] without risks, particularly in regards to the monsoon progress and recession risks globally,” said Sakshi Gupta, economist at HDFC bank.

She added, however, that the growth figures reflected optimism for the Indian economy despite global headwinds.

The Reserve Bank of India has raised its benchmark interest rate by 250 basis points since May last year, and economists expect it to leave the rate unchanged for the rest of 2023 as it waits to see what the impact of earlier hikes has been.

The manufacturing sector, which for the past decade has accounted for just 17 percent of India’s economy, expanded 4.5 percent year-on-year in the January-to-March quarter, compared with a revised 1.4 percent contraction in the previous three months.

Forecasts for normal monsoon season rains in the next four months could support the farm sector, which grew 5.5 percent year-on-year in the quarter compared with an upwardly revised 4.7 percent in the previous quarter.

Uneven recovery

Private consumption, which accounts for nearly 60 percent of the economy, grew 2.8 percent year-on-year compared with a revised 2.2 percent in the previous quarter, while capital formation, an indictor of investment, rose 8.9 percent from a downwardly revised 8 percent.

“The current consumption demand is highly skewed in favour of goods and services consumed largely by the households falling in the upper income bracket,” said Sunil Sinha, principal economist at India Ratings and Research. “A broad-based consumption recovery, therefore, is still some distance away.”

Federal government spending, which constitutes about 10 percent of India’s gross domestic product, rose 2.3 percent year-on-year in the latest quarter, compared with a revised 0.6 percent contraction in the previous quarter.

Prime Minister Narendra Modi, who remains popular after nine years in power, has stepped up capital spending in the past few years to build roads, railways and new airports to revive the economy after the pandemic.

Economists said the world’s most populous country needs to grow by 7 percent to 8 percent a year and build a strong manufacturing base to create jobs for millions of workers. Currently, 45 percent of India’s workforce is employed in the farm sector, which contributes just 15 percent to the economy.

The lack of well-paying jobs remains a major issue among young people, as reflected in the unemployment rate rising to 8.1 percent in April, as more people joined the workforce, according to the Mumbai-based think tank, the Centre for Monitoring Indian Economy.