E-Paper
Inflation impact: Govt may lower growth expectations
Despite a strong rebound in factory output and better-than-estimated revenue collections, the government may still peg the real GDP growth rate for 2011-12 at about 8.5%, anticipating high prices, at least during the first half of the next fiscal year. HT reports. The price problem
Despite a strong rebound in factory output and better-than-estimated revenue collections, the government may still peg the real GDP (gross domestic product) growth rate for 2011-12 at about 8.5%, anticipating high prices, at least during the first half (April to September) of the next fiscal year.
“The headline inflation is expected to be around 6.5% at end-March, much above the 4% annualised inflation assumed during the beginning of the year. This would force a more conservative GDP growth projection of about 8.5% for 2011-12,” said an official who did not wish to be identified.
The GDP projections would depend on the trend in commodity prices. And the latest worry is food prices touching 18.32% in end-December.
Experts have warned that global food and commodity prices could rise higher still in wake of floods in Australia, drought in Argentina and extreme cold weather in Russia resulting in poor wheat harvest. Wheat produce and coal supplies would worsen further as floods inundated Australia — a major exporter of both commodities.
A food price index developed by the United Nations’s Food and Agricultural Organisation (FAO) reached its highest ever in December, surpassing the previous peak of June 2008.
Crude oil prices are also inching towards the worrisome $100 a barrel mark as industrial activity picked up strongly in a fast-rebounding global economy.
Economists are grappling for options to sustain growth, keep prices in check and maintain interest rates at moderate levels to ensure that cost of borrowing for corporations do not go up to an extent that it discourages investment.
Industry captains said that any further rise in interest rates could adversely affect the growth momentum. “We expect inflation to be higher and maintain that the RBI will resume tightening in January,” said Rajeev Malik, senior economist, broking and research firm CLSA.
