India's GDP seen dipping to 8 percent in fiscal 2012

Study says high inflation to persist

In its ‘Economic Outlook Survey’ , Ficci also said inflationary pressure in the economy will persist during the first half of this fiscal, before moderating to around 7 per cent by year-end.

“The economy is expected to grow by 8 per cent this fiscal as against 8.6 per cent in 2010-11,” it said.

“Inflation may further accelerate over the first half of the fiscal year because of the expected increase in diesel, LPG and kerosene prices and supply side constraints faced by commodities such as vegetables, fruits, pulses, milk and eggs,” it added.
Ficci, however, said that in the second half of this fiscal, inflationary pressure is likely to moderate and the numbers may to fall to around 7 per cent by March 2012.

The industry body’s projections are almost in line with those of the Reserve Bank of India. In its monetary policy for 2011-12, released earlier this month, RBI projected the economy to grow by 8 per cent this fiscal, lower than the Government’s original forecast of 9 per cent. It had also said that rising global commodity prices, particularly of crude, would keep the headline inflation high in the near future. The apex bank had projected inflation to average 9 per cent during the first half of this fiscal before moderating to around 6 per cent by year-end.

The GDP growth during the first two quarters of 2010-11 was 8.9 per cent, while it grew by 8.2 per cent in the third quarter. The numbers for the fourth quarter of last fiscal as well as for the whole of 2010-11 are going to be released tomorrow.

Ficci said the final annual growth would be 8.6 per cent, in line with the government’s initial estimates. It also said that growth in the fourth quarter of 2010-11 would be 8.2 per cent. According to the survey, economic growth this fiscal will slip on account of slowdown in agriculture and services.

It said that while agriculture and allied activities are likely to grow by 3.7 per cent this fiscal as against the projected 5.4 per cent for 2010-11, growth in services will be down to 9.2 per cent from 9.6 per cent projected for last fiscal.

Inflation has been above 8 per cent since January 2010 and stood at 8.66 per cent in April this year. According to a majority of economists, who participated in the survey, the country should consider 6 per cent inflation to be normal.
Headline inflation in the range of 4-5 per cent is generally treated as being in the ‘comfort zone’.

A majority of economists also feel that RBI should stop its current anti-inflationary rate hikes when inflation moderates to around 7-7.5 per cent, Ficci said.
“They expect that the RBI will further increase the repo rate by another 50-75 basis points in this rate hike cycle,” it said. India received FDI worth US$3.39 billion during January-March, 2011, a decline of 32 per cent vis-a-vis the same period last year, according to the latest data from the industry ministry.

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