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Economy slows, but India can bear it

Economists said it was rising inflation that would affect the population and it makes political and economic sense to tackle inflation first, reports BS Srinivasalu Reddy.

business Updated: Mar 28, 2008 03:06 IST
BS Srinivasalu Reddy

As Finance Minister P Chidambaram spoke of India’s hot economy slowing by 0.5 to 0.75 per cent over the next fiscal (2008-09) in Singapore, economists said it was rising inflation that would affect the population and it makes political and economic sense to tackle inflation first.

Over the next 12 months, India’s economy may grow at its slowest pace in four years, Chidambaram told Bloomberg on Thursday.

The sluggish growth will be the fallout of a global slowdown, which affects foreign investment and exports. “We think there will be some second-order effects from the US slowdown,” he said.

As markets dropped by 71 points, to close at 16,015 points on Thursday, after Chidambaram’s interview, his tacit acknowledgement of a slowdown seemed to reveal that the government knows the importance of containing inflation than boosting growth.

“Inflation will affect the common man more than the slowdown,” said DK Joshi, director and principal economist of Crisil, a rating agency. Job losses will have only a marginal effect on the poor, he added.

With suppliers unable to meet growing demand, experts expect inflation to rise in 2008-09. The Reserve Bank of India cannot cut interest rates to boost the economy, with inflation at 5.92 per cent.