It's official: GDP growth cut to 8.6% | business | Hindustan Times
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It's official: GDP growth cut to 8.6%

Acknowledging persistent high inflation and imminent signs of an industrial slowdown, the government today officially pared gross domestic product growth forecast for 2011-12 to 8.6% from the earlier 9%. Challenges loom as prices remain high

business Updated: Jul 20, 2011 22:26 IST
HT Correspondent

Acknowledging persistent high inflation and imminent signs of an industrial slowdown, the government on Wednesday officially pared gross domestic product (GDP) growth forecast for 2011-12 to 8.6% from the earlier 9%.

"Growth is estimated to be marginally higher at 8.6 % this year over 2010-11 levels of 8.5%," the finance ministry said in a statement.

The revised growth outlook comes barely four months after the presentation of the budget in February when the government had projected a GDP growth of 9% for 2011-12 based on the assumption that average inflation during the year would be 5%. But the current inflation is challenging this.

The finance ministry now expects inflation to remain at higher levels for the better part of 2011-12.

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"Headline WPI (wholesale prices index) monthly inflation will likely remain relatively sticky and persistently high between August-December 2011 and start to fall thereafter," the finance ministry said in a statement issued to a select group of journalists.

"We expect that the headline WPI inflation should moderate to 6 to 7 % by March 2012."

India's inflation rate in June accelerated to 9.44%, driven by high fuel and manufactured product prices, but experts warned that prices will again surge in the coming weeks as the knock-on effects of a hike in diesel prices cascade through the economy.

High inflation has hurt investment as input costs and costlier borrowing squeeze corporate profitability, forcing them to defer planned capacity expansions.

India's GDP grew by 8.5% for 2010-11 as a whole, but the last quarter (January to March) growth fell to 7.8%-- the slowest in five quarters-pulled down by a sluggish manufacturing sector, as rising interest rates hurt consumption and investment, between them squeezing demand.

"Corporate investment is moderating. Capital expenditure is led by profit cycle, which was affected somewhat by cost escalation of inputs," the ministry said. Investments in new projects at Rs 2,66,453 crore was the lowest in seven quarters during January to March quarter - the latest for which data was available.