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Low growth, high inflation likely to persist in India

Oct 14 2013, 11:15 IST
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According to a poll, wholesale prices probably rose 6% in September, slightly below a six-month high of 6.1% in August. According to a poll, wholesale prices probably rose 6% in September, slightly below a six-month high of 6.1% in August.
SummaryWith growth stuck below 5% and prices rising, inflation numbers due later will likely show same trend.

Indian economic data on Monday will likely offer further evidence of high inflation and weak growth, 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 per cent and prices rising at a fast clip.

Inflation numbers due later on Monday will likely show the same trend.

According to a Reuters poll, wholesale prices probably rose 6 per cent in September, slightly below a six-month high of 6.1 per cent in August. Consumer inflation, also due on Monday, is expected to have 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 0630 GMT. Consumer price data is due at 1200 GMT.

The inflation data comes on the heels of Friday's disappointing industrial output numbers. Output grew a much-slower-than expected 0.6 percent in August, compared with an upwardly revised 2.75 percent expansion in July, hurt by weak investment and consumer demand.

The government is hopeful the economy will start to recover by the end of the year on higher farm output and exports. But the latest industrial production data has dampened that hope.

Output grew just 0.1 percent between April and August, the first five months of the fiscal year 2013/14.

That will be 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.

"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 perceived comfort

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