Growth has accelerated from 7.5 per cent in 2004-05 and investors had expected less than 8 per cent this time.

The Bombay stock exchange Sensex index closed above 10,000 for the first time, ending 1 per cent higher at 10,082.88. Foreign funds are playing a key role in India’s boom — they put more than £6 billion into Indian shares last year and have already invested a further £750 million in 2006.

Service sectors are powering India’s economic resurgence. They already provide half of national income and their output is projected to rise by 11.1 per cent in 2005-06, well ahead of the economy as a whole. Manufacturing is also growing strongly; output is likely to be up 9.4 per cent.

Palaniappan Chidambaram, the Indian Finance Minister and a champion of economic liberalisation, said that India was experiencing a heady mixture of economic and financial progress: “The Sensex index reflects business confidence and strong fundamentals.”

India’s trend rate of growth appears to have risen from just under 6 per cent to about 8 per cent, but is still slower than that of China, which managed 9.9 per cent growth in 2005. Manmohan Singh, the Prime Minister, has said that it should be feasible to target a 10 per cent growth rate in a few years’ time, with further reform and more investment in electricity. In the current year, however, India’s traditional agriculture sector is mainly responsible for the improved growth rate. Droughts hit the 2004-05 harvest, curbing growth in farm output to 0.7 per cent and trimming growth of the economy from 8.5 to 7.5 per cent. But a good monsoon has helped to raise farm output by 2.3 per cent in the current year. Agriculture now produces a quarter of India’s national income but still employs almost two thirds of the people.

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