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India to boom at 9.5% for next few years: Moody's

Last updated on: June 3, 2011 17:57 IST

India to boom at 9.5% for next few years: Moody's

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Financial service firm Moody's said on Friday India's growth prospects over the next few years remain robust and the economy is expected to expand by 8.5-9.5 per cent annually despite the slowdown during the January-March quarter of last fiscal.

Terming inflation as the biggest challenge before the Indian economy, Moody's said the Reserve Bank should focus on controlling the price rise and added that maintaining the balance between growth and inflation would a test for policymakers.

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"The slowdown in India's real gross domestic product in the three months to March was not entirely unexpected. . .

The economy is still carrying strong growth momentum into 2011 and should grow in a range of 8.5-9.5 per cent over the next few years, in line with its recent trend," it said in a report.

The country's economy grew by 7.8 per cent during the quarter ended March, the slowest pace of growth in the last five quarters mainly on account of poor performance of the manufacturing sector.

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It had registered a growth of 9.4 per cent in the corresponding quarter of the previous fiscal and by 8.3 per cent in the third quarter of 2010-11.

Overall, the economic growth during 2010-11 was 8.5 per cent, a tad below the government's forecast of 8.6 per cent, but well above 8 per cent registered in 2009-10.

In the pre-Budget survey, the government had projected economic growth during 2011-12 at 9 per cent.

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Image: Reserve Bank of India.
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However, in its monetary policy released last month, RBI said the economy is likely to register a growth of only around 8 per cent this financial year.

Calling upon the RBI to be proactive in controlling inflation, which it termed as the biggest threat to India's growth, Moody's, however, cautioned that policmakers would face a tough task in balancing between growth and price rise.

"As for controlling inflation, the central bank's job is far from done. . .Interest rates will have to rise further to tame inflation and that will come at expense of investment.

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"Policymakers' greatest challenge will be managing the balancing act between inflation and growth," Moody's said.

Reserve Bank of India has already hiked its key-policy rates nine times since March 2010 to curb demand and tame inflation.

Experts had blamed high inflation and the resultant rate hikes as the reason for slowdown in the manufacturing sector.

"High inflation, fueled by energy prices, is still the biggest threat to the economy ... The RBI must stay focused on reducing inflation in the interest of longer-run growth and stability," Moody's said.

It said that inflation remain the prime risk to medium-term growth and the effects of higher fuel and non-fuel commodity prices are yet to be completely known.

"Despite the slowdown, it is important to bring down inflation as quickly as possible since research shows that episodes of high inflation have typically been followed by slowdowns in growth rates," the report said.

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Rising interest rates and input costs of commodities have led to a slowdown of investments in the sector.

Headline inflation has been above 8 per cent since January 2010 and stood at 8.66 per cent in April this year.

Moody's said that global commodity prices, particularly or crude (which are currently above $100 per barrel) remain the primary obstacle in the path of economic growth.

Regarding exports, Moody's said overseas shipments remain robust despite the slight dip in April as against March.

"Exports growth remained robust... demand from within Asia remains solid," it said.

India's exports grew by 34.4 per cent on an annual basis to $23.8 billion in the first month of the 2011-12 fiscal.

However, it was lower in April compared to the growth of about 44 per cent reported in March.


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