India forecasts stronger growth at 4.9p

PUBLISHED : Monday, 10 February, 2014, 4:31am
UPDATED : Monday, 10 February, 2014, 4:31am

India has forecast faster acceleration in economic growth than analysts expected, but the prediction faces risks from interest rate increases to quell inflation and expenditure curbs by the government.

Gross domestic product will rise 4.9 per cent in the year ending March, compared with the decade-low 4.5 per cent in the previous fiscal year, the Statistics Ministry said on Friday. Analysts have predicted growth of 4.7 per cent this fiscal year.

The government's projection might be revised upwards later and the final growth rate was unlikely to be less than 5 per cent, Finance Minister Palaniappan Chidambaram said at the weekend.

India last month joined nations from Brazil to Turkey in raising interest rates, striving to stem the fastest inflation in Asia and shield the rupee from a cut in US monetary stimulus that is hurting emerging-market assets. Polls signalling that a general election due by May could lead to an unstable coalition government are adding to risks.

"Fiscal consolidation efforts will continue to remain a focus area for the new government as well," said Devendra Pant, the chief economist at India Ratings & Research, a unit of Fitch Ratings.

"There is no scope for across-the-board stimulus."

Reserve Bank of India governor Raghuram Rajan unexpectedly raised the repurchase rate by a quarter percentage point to 8 per cent on January 28, the third rise since September last year.

A central bank panel has suggested India should reduce consumer price inflation to 8 per cent within one year and 6 per cent by 2016, and that the RBI should then adopt a 4 per cent target with a band of plus or minus two percentage points.

Consumer price inflation slowed to 9.87 per cent in December, but remains the fastest in a basket of 18 Asia-Pacific economies tracked by Bloomberg.