Mumbai: India’s wholesale price index (WPI) which has been falling for eight consecutive weeks is likely to continue moving down until October-November 2009 before it starts rising again, a recent review by a think-tank showed.
The Centre for Monitoring Indian Economy (CMIE) said inflation was expected to accelerate to 3% by March 2010, below the central bank’s upwardly revised 5% estimate.
However, CMIE has upped its average inflation estimate for 2009-10 to 0.5% from 0.1% earlier. The wholesale price based index fell an annual 1.58% in the week to 25 July, its eighth in a row, latest data shows.
Industrial production and transportation activity has been showing clear signs of revival, the review said. Factory output has risen for two successive months to May, and the data for June is due on Wednesday at 0630 GMT.
“However, the deficient rainfall in June and July 2009 will be a dampener, even as suppressed demand for goods and services begins to get unlocked,” CMIE said, cutting industrial output growth forecast for 2009-10 to 4.7% from 5.1%.
Interest rates are unlikely to rise this year due to the large government borrowing as surplus liquidity in the system, the deposit mobilisation, overseas inflows and open market operations by the RBI would be more than adequate to meet all liquidity needs in 2009-10.
They also maintained their gross domestic product forecast for the current fiscal year at 5.8%, below the government’s estimate of 7% and the central bank’s forecast of 6% with an upward bias.
However, weak monsoons are likely to affect the agriculture GDP, they said.
India’s monsoon shortfall worsened to 28% at the weekend, raising fears that the June-September season may turn out to be as bad as 2004 when summer crop output fell 12% after a drought.
CMIE said kharif crops output was expected to dip as acreage was unlikely to increase significantly, implying that total crop production may decline by 4.7% in 2009-10, after declining by 1.5% in 2008-09.
“Production of kharif rice, cotton and sugarcane is expected to fall sharply. This will bring down GDP of agriculture and allied sectors by 2% in 2009-10, ending six years of consistent growth.”