The Hindu Business Line : Inflation, rate hikes could pull down GDP growth

MUMBAI: Inflation, fuelled by surging energy and commodity prices and interest rate hikes by the Reserve Bank, could pull down India's economic growth from the projected eight per cent to 7.8 per cent this fiscal.

"High oil prices, strong input costs and a depreciating Rupee continue to exacerbate inflationary and other pressures. High interest rates, along with a slowing global economy, will trim GDP growth to 7.8 per cent in 2008-09," Standard & Poor's Asia-Paci fic Chief Economist, Dr Subir Gokarn, said in a statement issued here on Thursday.

Dr Gokarn said that the inflation rate was expected to average around 8.5 to nine per cent during this fiscal. Rising inflation, a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investors' confidence and l ed to foreign capital outflow.

"This has led the Rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007," the statement said.

As global market conditions become more stable and oil prices moderate, the Rupee could appreciate to around Rs 41-41.5 vis-a-vis the US dollar towards the end of the fiscal year, the statement said.

The country's current account deficit was expected to swell to about 2.6 per cent of GDP. "Fiscal improvements in the past few years are likely to be reversed this year, due to a surge in oil, fertiliser and food subsidies," the statement said. - PTI

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