Low growth, high inflation likely to persist in India

Oct 11 2013, 19:20 IST
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The government is hopeful the economy will start to recover by the end of the year on higher farm output and exports. Reuters The government is hopeful the economy will start to recover by the end of the year on higher farm output and exports. Reuters
SummaryIndustrial output data due later on Friday and inflation numbers to be released on Monday will show the same trend.

Indian economic data in coming days will likely offer further evidence of weak growth and high inflation, complicating the central bank's mission of cooling prices without worsening the slowdown and adding to the government's difficulties as it heads into an election season.

Asia's third-largest economy has been caught in a situation which some analysts define as akin to stagflation for the past three quarters -- with economic growth stuck below 5 percent and prices rising at a fast clip.

Industrial output data due later on Friday and inflation numbers to be released on Monday will show the same trend, two polls of economists showed.

That's a worry for Prime Minister Manmohan Singh's Congress party as it campaigns for five state elections starting in November, a warm up for national elections due by next May. The opposition Bharatiya Janata Party has gained momentum in recent months thanks in part to the weak economic performance of Singh, a veteran economist and reformer.

The government is hopeful the economy will start to recover by the end of the year on higher farm output and exports. But Friday's data will likely add to Singh's woes, showing production from mines and factories grew by just an annual 2 percent in August, slower than July's 2.6 percent rise, according to one of the surveys.

Output contracted 0.2 percent between April and July, the first four months of the fiscal year 2013/14.

More pain is expected on Monday, when another set of data is likely to show wholesale prices rose 6 percent in September, a tad below a six-month high of 6.1 percent in August. Consumer inflation, also due on Monday, probably quickened to 9.60 percent last month from 9.52 percent in August, the poll showed.

The government will release the data on wholesale prices around 06:30 GMT. Consumer price data is due at 1200 GMT.

"India is likely to face low growth and high inflation for some time," said Daniel Martin, Asia Economist at Capital Economics in Singapore, who expects the Reserve Bank of India (RBI) to increase its repo rate by another 25 basis points later this month.

"A higher repo rate will hold up the economic recovery. It is a difficult situation for the central bank."

Economic growth has averaged 4.6 percent between the fourth quarter of 2012 and the second quarter of 2013. Headline inflation, measured by wholesale prices, averaged around 7 percent in the same period -- way above the central bank's

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