India’s growth to moderate next fiscal year

By Swati Bhat

MUMBAI (BestGrowthStock) – India’s economic growth is on track to accelerate in 2010/11 on the back of monsoon rains but expectations for growth in the following year have moderated slightly, a quarterly Reuters poll shows.

Analysts raised their expectations for how far the central bank will lift rates in the fiscal year to the end of March 2011, reflecting signs that demand pressures, especially for consumer durables, are building in Asia’s third-biggest economy.

A survey of 21 economists produced a median forecast that the economy would grow 8.4 percent in the year ending March 2011, unchanged from a similar poll conducted in July and up from growth in 2009/10 of 7.4 percent.

They projected growth of 8.3 percent in 2011/12, slightly below 8.5 percent forecast in July.

“Rising cost pressures and global uncertainties are likely to have a sobering impact on India’s growth momentum,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.

Wholesale price inflation is forecast at 8.3 percent at the end of 2010/11, similar to current levels, before moderating to 5.7 percent the following year. This compares with 8.6 percent and 5.5 percent, respectively, in the previous poll.

The central bank expects WPI inflation to ease to 6 percent in March 2011.

The cut in forecasts for inflation at the end of the fiscal year reflect the view that a healthy monsoon will bring down food prices, which have a big influence on the headline index.

However, rising demand for consumer durables, such as cars, will need sterner action from the central bank than previously forecast because of the risk that these price pressures can filter more broadly through the economy.

The Reserve Bank of India (RBI) has raised its short-term lending rate by a total of 125 basis points in five moves in 2010 to 6 percent, but is seen to be nearing the end of its current tightening cycle.

The poll forecast that the RBI would raise the repo rate, at which it lends to banks, by another 50 basis points to 6.50 percent by the end of March 2011.

Just one more 25 basis point hike is expected in the following fiscal year.

The rupee is forecast to be around current levels at the end of December, but is seen appreciating by about 1.2 percent between now and the end of March. It is up 4.3 percent so far in 2010 after having climbed 4.7 percent in 2009.

(Additional reporting by Neha D’silva and Suvashree Dey Choudhury in MUMBAI; Yati Himatsingka in BANGALORE; Poll pages by Bangalore Polling Unit; Editing by Tony Munroe)

India’s growth to moderate next fiscal year