Gross domestic product (GDP) expanded at a faster pace in the fourth quarter of the financial year, growing 7.9 percent year-on-year, the Central Statistics Office data showed.
The figure beat the average forecast for 7.5 percent growth in the three months to March 31, according to a Bloomberg survey of 27 economists.
Prime Minister Narendra Modi’s Hindu nationalist government swept to power in a May 2014 general election promising to reform the economy and kick-start growth.
India has outpaced China in recent quarters, with the Chinese economy growing 6.7 percent in the first three months of 2016, its slowest quarterly expansion in seven years.
“It is clearly a positive story, in terms of juxtaposing this data with (other) indicators, quite clearly we are seeing a turnaround, a point of inflection taking shape,” said Shubhada Rao, Chief Economist at Yes Bank in Mumbai.
However, India is dogged by concerns over the reliability of its economic growth data, more than a year after the government introduced a revised formula for calculating GDP which some analysts have criticised.
The government says the new method is closer to international standards.
“These (GDP) figures are hard to align with other evidence on the economy’s health,” Shilan Shah of Capital Economics wrote in a note Tuesday.
“We should take the official GDP data, and the rates of growth they are suggesting, with a pinch of salt.”
Some measures have improved markedly in the past two years, including the inflation rate, which has come down from double-digit levels to 5.4 percent in April.
But private investment is weak and industrial output sluggish, while exports have fallen for 17 months in a row.
– Monsoon imminent –
Economists are now looking ahead to the imminent monsoon, which has an outsize influence on the economy because of its impact on millions of farmers, whose crops are highly dependent on the annual rains.
Households in rural areas — about two-thirds of the 1.2 billion-strong population — are suffering from a devastating drought after two consecutive weak monsoons.
The Reserve Bank of India is expected to wait to assess the strength of the monsoon, which begins in June, before deciding whether to cut interest rates and provide a fresh boost to consumption.
India’s central bank in April cut its key interest rate to a five-year low of 6.5 percent citing a dip in inflation, and signalled there could be further rate cuts to come.
The bank is scheduled to hold its next policy meeting on June 7.
Economists also say further increases in the price of oil could push up the inflation rate and curb growth.
India, which imports most of its oil, has benefitted from sharply lower oil prices over the past year but crude has rallied recently to touch $50 a barrel.