Inflation to cut India growth to 8%, warns World Bank

Rising inflation and slowing demand would moderate India's economic growth to 8 per cent during 2011-12 from 8.8 per cent in the previous fiscal, said a World Bank report.

". . . (India's) growth is projected to ease to 8 per cent in FY 2011-12 from 8.8 per cent in FY 2010-11", World Bank said in its June edition of Global Economic Prospects.

Elaborating on the reasons behind the expected slowdown in the country's economic growth, the multilateral lending agency said it 'stems from a moderation in domestic demand, as elevated inflationary pressures have cut into disposable incomes and household spending'.

Experts have blamed inflation and the resultant rate hikes by the RBI, which resulted in slowing down of investment, for the poor economic growth numbers.

Inflation has remained at an elevated level despite the Reserve Bank's tight monetary policy stance.

Reserve Bank of India has raised its lending (repo) and borrowing (reverse repo) rates nine times since March 2010.

Headline inflation in April stood at 8.66 per cent.

The government said earlier it expects the recent hike in petrol prices to put upward pressure on the rate of price rise in the coming months.

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"This slowdown partly reflects macroeconomic policy tightening aimed at curbing stubbornly high price pressures and reducing large fiscal deficits", World Bank said.

Food inflation stood at 8.06 per cent for the week ended May 21. A rise in prices of food items was the main reason for inflationary pressure during 2010.

Food inflation was in double digits for most of last year, before showing signs of moderation from March this year.

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"Tighter financing conditions have contributed to a moderation in private investment growth, while private consumption growth has been hit by high and rising food and fuel inflation", World Bank said.

Investment growth decelerated sharply in the first quarter of 2011 to 0.4 per cent from 7.8 per cent in the fourth quarter of 2010 and 14.1 per cent for year 2010.