High inflation is expected to hurt growth this fiscal. The Federation of Indian Chamber of Commerce and Industry (FICCI)'s Economic Outlook Survey of 12 influential economists bears this out.
There is more moderation on the cards for 2011-12, the annual GDP rate is expected to settle at 8 percent. According to the projections, the rate will hover at around 8.6 percent for 2010-11, with the Q4 rate dipping to 8.2 percent.
On the inflation front, most of the economists surveyed are all for a softer policy though the prices are expected to remain firm. The FICCI survey forecasts that the rate of inflation may further go up over the first half of the fiscal year (April-September 2011). This would be mainly due to the expected increase in diesel, LPG and kerosene prices and supply side constraints faced by commodities such as vegetables, fruits, pulses, milk and eggs. The RBI is expected to disengage from its current anti-inflationary rate hike spell once prices moderate to around 7 percent to 7.5 percent. The buzz is that the central banker may further increase the repo rate by another 50-75 basis points in this rate hike cycle.
FICCI Economic Outlook Survey May 2011 (Full Report)
There are broadly four reasons why experts think prices are going to lose their sting over the long term.
* Economists expect stability in the international crude as the overreaction in oil prices to the problems in the Middle-East is calming down;
* The likely downward movement in the international commodity prices
* Measures expected to be taken by the government to ease supply side bottlenecks; and
* the possible lagged impact of the successive policy rate hikes coming in to play and impinging on the demand side pressure of the inflation.
Some economists took the line that a pure monetary approach to manage prices may be fraught with risks. Targeting only non-food inflation rather than food may offer a way out, they felt.
Not all seems to be well with the foreign direct investment (FDI) inflow and outlook for the same in 2011-12. The recent drop in FDI flow did stir some worries. Regulatory uncertainties and a general slowdown in the international market are seen as the main culprits for the current state of affairs.
Going ahead, economists expect the FDI inflow to India in FY 2012 to remain subdued. They are fairly optimistic that a stronger recovery in mature economies, together with the government's action on easing barriers here and improving the business climate, could perk up the FDI scene in future.
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Updated Date: Dec 20, 2014 03:50:03 IST