MUMBAI (Commodity Online): India's economy will continue to be on high growth path after rebounding strongly in the second half of 2009, but managing inflation will be a major concern, according to a commentary titled, "India's Strong Growth Looks Set To Continue In 2011, But Inflation Remains A Worry," published on RatingsDirect.com.
"We expect India's economy to grow by 8.1% in 2010, based on a steep gain in industrial output, and resurgent private consumption, investment, and exports. Were these scenarios to continue, growth would lift further to 8.3% in 2011," said Dharmakirti Joshi, Chief Economist at CRISIL Ltd., the Mumbai-based subsidiary of Standard & Poor's.
Mr. Joshi also expects the Reserve Bank of India (RBI) to continue gradually raising interest rates and to keep a tight leash on liquidity to tame inflation. Meanwhile, higher-than-expected revenues from 3G spectrum sales and the positive kick to tax revenue from sustained economic recovery will keep the fiscal deficit within the budgeted 5.5% of GDP in the current fiscal year, which began in April 2010.
Growth is also expected to become more balanced; government spending is declining as fiscal stimulus measures are unwinding, and private spending is picking up. In 2010, favorable monsoons (the rains that fall from June to September) should lead to strong farm production, which will help drive economic recovery and bring down food inflation.
While inflation remains a concern, Mr. Joshi expects it will recede in coming months. "In our opinion, CPI inflation should continue to recede from current double digits as food inflation comes down on the back of improved farm output and as the RBI's tightening measures tame nonfood inflation," he said.
Resurgent exports and capital inflows add to the positive story. Export growth rebounded in November 2009, after 13 months of year-on-year decline, and has been in double digits since January. We expect it will remain buoyant this year mainly as it's coming off such a low base and is helped by the improved global outlook. Imports, too, have rebounded sharply since the start of 2010 and we anticipate they will do well on robust recovery in domestic demand and because of the low base effect. We expect to see the trade deficit widen as imports growth outweighs exports growth.
There has also been a fast rise in India's status as an attractive destination for foreign investment, which saw it join the list of top-10 FDI destinations in 2009. In the first four months of 2010, it received FDI inflows worth US$7.1 billion compared with US$8.5 billion during the same period last year. "We believe a slow economic recovery in other parts of the world will make India a more attractive destination for inbound investment this year," said Mr. Joshi.
