India’s economic indicators unlikely to improve soon: State Bank of India

[Naveed Yaseen]

NEW DELHI: India’s central bank has released a report predicting an economic slowdown, rising inflation and dwindling corporate profit growth over the next nine months.

Twenty forecasters surveyed by the bank expected that annual gross domestic product growth, now running at 9%, would slide to 7.9% over the next nine months, according to the report released late Thursday by the Reserve Bank of India.

GDP growth driven by industry and services, the forecasters predicted, would total 7.5% and 9.5%, respectively, this year, down from last quarter’s predictions of 8.1% and 9.7%. Agricultural growth expectations remained flat, at 3 percent.

They expected corporate profit after tax to grow at 16% in fiscal year 2008-09, down from 25% tallied in the bank’s last quarterly survey. Corporate profit after tax would then bounce to growth of 20% for fiscal year 2009-2010.

The survey also revealed a consensus that the government would maintain its tight stance on money supply, predicting that the central bank would keep its key interest rate, or repurchase rate, at which the central bank makes short-term loans to commercial banks, near 9% through the current fiscal year ending March 31. The forecasters expected inflation to be 11.7% this quarter, before falling off to 11.4% and 9.2% in the subsequent two quarters.

Inflation, driven largely by the high price of oil on global markets, hit a new high of 11.98% in the week to July 19.

The bank said its quarterly forecasting survey, dated July 31, represents the views of the forecasters and not the bank itself.

In a bid to tame rampant inflation, the central bank this week raised its key interest rate 50 basis points, more than expected, to 9%, the third such hike in two months. It also further tightened money supply by increasing the cash reserve ratio, the amount of cash banks must keep on hand, to 9%, up from 8.75 percent.

Last week, the Federation of Indian Chambers of Commerce and Industry, or FICCI, which says it represents over 250,000 enterprises across the country, urged Prime Minister Manmohan Singh and other top government officials to create better conditions for growth and bolster waning business confidence.

In its “100 Day Agenda for the Government” the FICCI argued that the bank’s monetary policy has exacerbated the nation’s fiscal woes. Raising interest rates, it said, will do little to tamp down supply-side inflationary pressure, which must be attacked by rapid investment to boost capacity. reuters

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