RBI must step up inflation fight: finance ministry

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Aug 19: poor, has lost ground in nine of 11 state polls since January 2007. The next national election has to be held before May 2009. “Inflation hurts the poor more disproportionately and has a political significance in India,” said Ramya Suryanarayanan, an economist at DBS Bank in Singapore. The World Bank estimates that about half of India’s 1.1 billion people live on less than $2 a day.

Higher borrowing costs will have an “impact” on domestic demand in India, the fastest-growing major economy after China, Virmani said.

“Our forecast range for the economy has been between 8% and 9% and developments since March suggest the likelihood of it being near the bottom of that range is higher now,” he said. Asia’s third-largest economy is expected to expand 7.7% in the 12 months to March, compared with an estimated 9% a year earlier, according to last week’s report from the prime minister’s advisory council. That would be the slowest pace of expansion in four years. The government should open up more parts of the economy and pursue pending reforms such as allowing a higher level of foreign investment in India’s pension and insurance industries, Virmani said.