Rocky road ahead: Duvuri Subbarao, Governor, Reserve Bank of India
INDIA’S central bank on Thursday (August 25) warned of a rocky road for the country’s economy in the months ahead due to high inflation, predicting a slowdown in growth amid increasing global uncertainty.
“The Indian economy needs to brace up for a difficult year from a macro-economic perspective,” the Reserve Bank of India (RBI) said in its annual report.
The main concern for India’s growth story was inflation, which the bank said was likely to stay high but fall to about seven per cent by March next year, despite a recent weakening of global commodity and oil prices.
Inflation was running at 9.22 per cent in July, according to official government data.
“Growth prospects for the (fiscal) year 2011-12 seem subdued compared to the previous year,” the RBI said in the 190-page document, predicting growth to be about 8.0 per cent.
India’s government forecasts growth of around 8.5 per cent but economists have lowered their estimates to between 7.0 and 8.0 per cent.
The RBI has raised rates 11 times in 18 months - the longest stretch of monetary tightening in a decade - to tame inflation, which is the fastest among major world economies.
Growth has slowed under the brunt of the hikes, as borrowing costs have surged for everything from consumer appliances to cars and plant equipment.
The RBI said global uncertainties have increased after the recent sovereign debt downgrade of the US and warned that it would place a downward bias on growth projections.
The bank’s monetary policy stance of tightening has been centred around inflation and global commodity prices like steel, rubber and plastics.
Despite fresh global uncertainties, commodity prices remain far above the previous year’s level, the bank said in the report, adding that India will need to raise fuel prices again if global oil prices stay at current levels.
Global oil prices have been volatile since civil unrest spread across the Middle East and North Africa.
India imports about 80 per cent of its crude oil and has been seeking new fuel sources as the country’s economy grows.
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