Inflation, low demand to moderate India’s GDP to 8%: World Bank

Inflation, low demand to moderate India’s GDP to 8%: World Bank

Washington: Rising inflation and slowing demand would moderate India’s economic growth to 8% during 2011-12 from 8.8% in the previous fiscal, said a World Bank report.

“... (India’s) growth is projected to ease to 8% in FY 2011-12 from 8.8% in FY 2010-11", World Bank said in its June edition of Global Economic Prospects.

Elaborating on the reasons behind the expected slowdown in the country’s economic growth, the multilateral lending agency said it “stems from a moderation in domestic demand, as elevated inflationary pressures have cut into disposable incomes and household spending".

The report further said the growth in the developing countries will slow down to 6.3% during 2011 and 2013 from 7.3% in 2010.

The World Bank’s India growth projection is in line with the Reserve Bank’s economic growth forecast of 8% for the current fiscal.

However, finance minister Pranab Mukherjee has pegged that growth projection at 8.75% (plus/minus 0.25%).

GDP growth of the country slowed to a five-quarter low of 7.8% during the January-March quarter, while the six core industries registered meagre 5.2% expansion in April.

Experts have blamed inflation and the resultant rate hikes by the RBI, which resulted in slowing down of investment, for the poor economic growth numbers.

Inflation has remained at an elevated level despite the Reserve Bank’s tight monetary policy stance. RBI has raised its lending (repo) and borrowing (reverse repo) rates nine times since March 2010.

Headline inflation in April stood at 8.66%. The government said earlier it expects the recent hike in petrol prices to put upward pressure on the rate of price rise in the coming months.

“This slowdown partly reflects macroeconomic policy tightening aimed at curbing stubbornly high price pressures and reducing large fiscal deficits", World Bank said.

Food inflation stood at 8.06% for the week ended 21 May.

A rise in prices of food items was the main reason for inflationary pressure during 2010.

Food inflation was in double digits for most of last year, before showing signs of moderation from March this year.

“Tighter financing conditions have contributed to a moderation in private investment growth, while private consumption growth has been hit by high and rising food and fuel inflation", World Bank said.

Investment growth decelerated sharply in the first quarter of 2011 to 0.4% from 7.8% in the fourth quarter of 2010 and 14.1% for year 2010.