A TOP advisory panel to India’s premier today sharply cut its economic growth forecast this year to 8.2 per cent, citing a string of interest rate hikes and global worries.
Last February, the panel projected Asia’s third-largest economy would grow by nine per cent in the 12 months to March 2012, in line with the government’s own forecast. Growth was estimated at 8.5 per cent last year.
The lower forecast would still make India the world’s second fastest-growing major economy after China, but the country’s longest streak of monetary tightening in a decade has hit industrial output and investment.
C Rangarajan, head of the Economic Advisory Council, said monetary policy should remain tight until inflation shows “definite signs of coming down”.
Last week, India’s central bank hiked interest rates by a surprise 50 basis points, the 11th rise since March 2010, to combat inflation of 9.44 per cent – the second highest rate after Russia.
Most analysts see further rate increases in the coming months, while Rangarajan said he expected inflation to come down to around 6.5 per cent by the end of March 2012.
Noting weak US economic indicators and US and eurozone debt worries, Rangarajan told reporters the forecast 8.2 per cent expansion was “high and respectable.”
The panel’s latest growth forecast is lower than the government’s recently revised estimate of 8.6 per cent. Some economists have suggested a figure as low as 7.3 per cent.
India’s economy expanded by 7.8 per cent in the January-March quarter, the lowest in five quarters, reflecting the impact of the rate hikes.
While growth of seven-to-eight per cent would be envied by Western economies, experts say India needs at least 10 per cent expansion to lift hundreds of millions out of crushing poverty.
Neighbouring China is also tightening monetary policy to fight inflation. Its economy expanded 9.5 per cent year-on-year in the second quarter.
High prices have caused huge hardship for India’s poor, who are key supporters of the government, which is reeling from a string of corruption scandals.
Rangarajan also said US and eurozone economic woes could hit India’s strong export expansion, which has been bolstering growth.
