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‘High inflation not to hurt momentum’

business Updated: Jun 26, 2008 20:39 IST

Inflation will continue to remain in double digits, may even move up a bit, in the coming weeks, but the economy’s momentum is intact, Commerce and Industry Minister Kamal Nath said on Thursday.

A sustained rise in global crude and commodity prices has pushed the wholesale price-based rate of inflation in India to a 13-year high of 11.05 per cent, and Nath said “it will go up (further) by 0.2 to 0.3 percentage points.”

It will take about two months for inflation to ease off from current highs, he said. “I think we are peaking out.”

His comments came amid growing concerns among industry and investors that the spike in inflation, which has forced the Reserve Bank and others to hike lending rates, would dampen consumer demand and investments, and thereby hurt growth of the broader economy.

The stock market has lost more than 10 per cent in the past month, as investors have turned jittery about the prospects of corporate earnings in months to come.

Nath, however, dispelled those concerns.

“There is a fear that economic growth has been stalled. I want to say that there is no evidence for such pessimism,” Nath told reporters. “The data we have suggests the economy’s momentum is continuing.” The minister said he expected industrial growth to average 8 per cent.

His optimism contrasts views of many experts and several business chambers that higher interest rates coupled with rising inflation would erode corporate margins and impact expansion of the broader economy.

Nath argued that there is scope for businesses to protect margin from high cost of finance by focusing on prudent management of funds. Also, he said foreign investment inflows continue to remain robust and exports were growing over 30 per cent.