INDIA’S ECONOMY grew a brisk 8.8 per cent year-on-year in the June quarter – its fastest pace since early 2008 – highlighting the strength of the economy in spite of the impact of high inflation on consumer spending.
The performance will encourage the Reserve Bank of India to persist with its aggressive monetary tightening to control inflation, which has dropped slightly to 9.97 per cent in July from a double-digit peak, but remains uncomfortably high.
“The first order of business for the government should be to contain the price pressure by raising interest rates,” said Frederic Neumann, managing director of HSBC, the investment bank.
“Stabilising prices is almost a precondition to reviving household spending.”
The pick-up in private consumption weakened from last quarter, growing just 0.3 per cent year-on-year, slowing from a 2.6 per cent growth in the previous quarter.
“The big puzzle is why consumption hasn’t taken off,” said Mr Neumann. “It’s the missing leg of India’s recovery – and the most likely culprit is rising inflation.”
New Delhi is forecasting that the economy will expand 8.5 per cent over the whole year, up from 7.4 per cent in 2009 in spite of a severe drought that hit farm production and pushed up food prices. – (Copyright The Financial Times Limited 2010)
