Cherian Thomas, Bloomberg
Mumbai: Moody’s Investors Service said India must increase farm and factory production to curb “classic signs of overheating” visible in Asia’s fourth- biggest economy.
“The current signs of overheating, including higher-than- acceptable inflation, domestic credit growth and rapid rupee appreciation is driven mainly by strong capital flows,” Moody’s India sovereign analyst Kristin Lindow said in an e-mailed statement today. “It can only be addressed through far-reaching structural reforms to boost productive capacity.”
Reserve Bank of India Governor Yaga Venugopal Reddy yesterday said supply constraints for manufactured and farm products will ease in the next three to four years, defending his cut in the central bank’s medium-term inflation target to between 4% and 4.5% from 5%. India is seeking $320 billion (Rs13,04,960 crore) of investments by 2012 to improve roads and power and spur manufacturing.
Inflation may be little changed at 6.10%, near a two-year high, in the week ended 14 April, according to the median forecast of 10 economists surveyed by Bloomberg News. The government will announce its weekly inflation data tomorrow in New Delhi.
Inflation has stayed above the central bank’s target of 5% since September as demand outstripped supply of steel, cement, wheat, lentils and other products. Finance Minister Palaniappan Chidambaram on 20 April forecast inflation to slow to 5.75% in the announcement tomorrow.
“Over time, Moody’s anticipates a firmer supply-side policy response will underpin stronger medium-term growth, accompanied by less risk of overheating,” Lindow said.