India may have come out of the world’s worst economic crisis in eight decades, but you should brace yourself for a few more months of uncertainty.
The government’s bitter medicine has not yet tamed prices, but affected growth. Although the gross domestic product (GDP) grew by a respectable 8.5% for 2010-11 as a whole, the last quarter (January-March) saw a staggering industrial slowdown.
Data released on Tuesday showed that the GDP grew 7.8% during January-March — the slowest in five quarters. Also, the manufacturing sector grew by 5.5% during the quarter as rising interest rates hurt consumption and investment.This will hurt growth as corporations will defer investments and look for ways to cut costs.
Experts warned that as inflation stayed close to double-digit levels — it was 8.7% in April — the RBI has no option but to raise interest rates further in June even after hiking them nine times in 13 months. So, expect EMIs to go up even more.
“Growth will suffer if inflation continues to remain high ... there may be a little less (growth) if inflationary pressure continues,” finance minister Pranab Mukherjee said.
Food prices are also set to rise in the next few weeks, following a possible hike in diesel and LPG prices that will pinch household budgets more.