India’s economic growth could slow down to 7 per cent in the current fiscal as investment activity is likely to be reduced in the present high interest rate regime, consultancy firm Deloitte said.
“Costlier credit could also lead to a drop in investment activity through the year. Consequently, GDP growth for the current fiscal could be as low as 7 per cent,” Deloitte said in its Global Economic Outlook report.
The Indian economy grew by 8.5 per cent last fiscal. In the current fiscal, the government expects the economy to expand by 8.5 per cent, while RBI said growth could moderate to 8 per cent.
Deloitte said high inflation situation is likely to persist in India and the Reserve Bank would continue with tight monetary policy stance. Also, if the fiscal situation does not improve, the economic challenges will not be alleviated in the coming year.
“Inflation is unlikely to subside in the near term and the central bank will probably continue raising interest rates until inflation stabilises around 6 per cent,” it said, adding, the rise in the price of diesel, kerosene and cooking gas is likely to stoke inflation.
Overall inflation breached the 9 per cent mark in December, 2010 and in July, 2011 it was at 9.22 per cent.
RBI has already hike key interest rates 11 times since March, 2010 to control inflation. Experts feel increased cost of borrowing could lower investments.
In the April-June quarter (Q1) of the current fiscal, the Indian economy expanded by 7.7 per cent, lower than 8.8 per cent in the corresponding period of the last fiscal.
Indo Thai Securities Ltd 