Bumper pay rises for India's civil servants, a service sector boom and growth in agricultural output helped India's economy grow 7.9% last quarter.

Exceeding expectations.

With rate of growth up from 6.1% in the second quarter, Q3 figures comfortably exceed the 6.3% expectation of economists. Accelerated growth validates government's fiscal stimulus measures and leads Subir Gokarn, the Reserve Bank of India's (RBI) deputy governor to conclude that year end predictions will need to be revised. Government had forecast 6.5% growth this financial year, 7%+ now appears possible.

Increased corporate confidence

KPMG's latest business outlook report - released yesterday - concluded that the BRIC's will play a major role in recovery. The global survey of 6,200 companies concluded that business confidence was strongest in these four critical markets. Findings suggest that economic activity will pick up in the next 12 months. Signs are India is recovering quickest.

Surprising but welcome

Unexpected growth caught economists out, Sonal Varma of Nomura was quoted as saying, "This is a surprising number. It will make it easier for the RBI to exit from the emergency low interest rate regime adopted last year."

Robert Prior-Wandesforde, senior Asia economist at HSBC said,"We believe this to be the biggest rise the Indian economy has seen since the quarterly data began in 1996."

Building on sand

With markets now worrying about exposure to crumbling Dubai, caution remains. Indian exports may take a hit, the United Arab Emirates is India's second largest export market, accounting for £11 billion of trade.

With 4.5 million Indians living in the Gulf region, many of them working in construction, likelihood is that many will return home without work. A mini economy will also be affected, between them this ex-pat community send nearly £18 billion back to relatives.

Recovery not a boom

Gokarn stresses that it is still early days. "The economy has started to show signs of recovery (but) It's not a boom yet. But as confidence returns some analysts already predict a return to growth of near 8.5% within two years.

While recovery is underway, is it sustainable? The late monsoon will damage Q4 figures, when its full affect will be seen. Inflation, while currently manageable is expected to increase, and higher food prices are on the horizon.

More developed economies must hope that next quarter figures point to a sustainable trend, only then are other economies likely to follow suit.