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'RBI's policy to hit Indian growth in '08'

Rating agency Standard and Poor's expects Indian economy to grow at 8.1-8.6% in '08, against 8.5-9% in '07.

business Updated: Dec 06, 2007 03:30 IST

The Reserve Bank's tight monetary policy is expected to moderate India's economic growth rate to 8.1-8.6 per cent in 2008, against 8.5-9 per cent in 2007, Global rating agency Standard and Poor's said on Wednesday.

However, India is relatively immune to US sub-prime crisis-triggered credit woes with domestic growth driving demand, the rating agency said in its 2008 outlook for Asia-Pacific financial market.

But domestic drivers may be face inference due to high global oil prices as India continues to see a rapid growth in energy consumption, and this may impact the ability of the Indian economy to grow under its own steam, the report said.

S&P has kept a neutral outlook on the Indian equity markets, saying additional foreign inflows may be muted due to the recent moves by the market regulator SEBI to limit foreign fund inflows via off-shore derivatives.

Politics is likely to continue to weigh heavily on the credit rating of sovereigns in the Indian sub-continent, S&P said, adding India's outlook is stable with fiscal consolidation commitments across all government levels, and state finances having shown vast improvements.

The global rating agency said projected moderation in growth reflects soft landing, taking the Indian economy closer to its current trend growth rate estimated at 8.5 per cent.

"Overall, while global developments have made the environment more risky, the strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory," S&P's Asia-Pacific Chief Economist Subir Gokarn said.