Tuesday, March 27, 2007


India's economy is headed for slower growth but still high, facing an astonishing 9 percent in the last two years. The state of economy has largely improved as the country gained benefits from an increased volume of international trade and steadily liberalized markets, especially real estate sector.

Asian development banks projects 8 percent economic growth for the fiscal year through March 2008. India's central bank has commited itself to curbing high inflation by reducing the supply of money. Government's share of responsible budget policy to reduce inflation pressures was pinned by the fiscal commitment to move from expansionary to restrictive budget policy coupled with the aim to cut public spending in the percentage share of the GDP. For this fiscal year, the growth is predicted to climb from 9 to 9,2 percent.

Growth optimism reflected the inflow of foreign direct investment and the appreciation of Indian rupee which could in turn led to denting India's competitiveness in the global arena. Rapid inflow of foreign capital flows slightly complicates the efforts by the central bank to rein in prices but inflation is always and everywhere a monetary phenomena. This year's inflation rate reached 6,7 percent and the central bank had to squeeze the excess money supply in circulation. The government also liberalized the agriculture market by reducing the imposed duties in order to increase the supply in the agricultural market. All those measure will push growth to the level of 8 percent in the next fiscal year. The Reserve Bank of India predicts the inflation rate to lower to 5 percent. In the beginning of 2008 the growth could spur up to 8,3 percent but that also largely depends on the pace of infrastructural boost needed.

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