India High Inflation Looking to Ease Some

India High Inflation Looking to Ease Some

India’s high rate of inflation is expected to reduce with the recent rainfall in what is turning out to be a good monsoon season.

India’s Prime Minister, Dr. Manmohan Singh, made a statement addressing a recent National Development Council (NDC) meeting, citing a bit more optimism about the inflation than projected by his advisory council’s statistics shared earlier this year. Dr. Singh said the high inflation is due to wholesale prices which are expected to come down soon. He noted that forecast conditions for continued good rains through August are sure signs that an economic upswing will take place in the agricultural sector.

To stem inflation, the Reserve Bank of India raised interest rates up to 5.75 percent on short-term loans to commercial banks in the continuing struggle against inflation.  The RBI predicts economic growth will now be at 8.5 percent, up a half percentage from the 8 percent April forecast. The inflation prediction for the year-ending March 2011 raised from 5.5 to 6 percent.

Furthermore, RBI Governor Divvuri Subbaro recently stated he would review the costs for borrowing every six weeks, a change form the previous one review per quarter.

The economic forecast comes in much closer to the goals set forth in the country’s 11th Five Year Plan (2007-12), according to Singh.

For executives in the west tracking development in India there are two points to note

  • India’s growth must be taken seriously (who else is growing in 2010 to the point that they have to worry about inflation).
  • While the current government enjoys a comfortable majority, its response to rising prices, could determine its fate in the next elections. Other important policies may be distracted or delayed while officials struggle with food prices rise. (Food is a much bigger part of the average Indian’s budget, compared to an American or European).

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