April 22 (Bloomberg) -- India aims for economic growth of 9 percent to 9.5 percent in the five years through March 2017 even though inflation is a concern, a top economic adviser to Prime Minister Manmohan Singh said.
“The rising inflationary pressure is a weak point,” Montek Singh Ahluwalia, deputy chairman of the nation’s Planning Commission, said in New Delhi yesterday. “We think proper fiscal balance and good agriculture production will help bring inflation under control.”
India’s benchmark wholesale-price inflation accelerated to 8.98 percent last month, more than the Reserve Bank of India’s 8 percent estimate, prompting Goldman Sachs Group Inc., Standard Chartered Plc and Barclays Plc to raise their forecast for interest-rate increases this year. India’s 11-year bond yields closed near a two-month high yesterday.
“Unless inflation is controlled, achieving such high growth rates may not be possible,” said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. “The key challenge will be to slow price increases.”
India’s inflation will average 5 percent between 2012 and 2017, Ahluwalia said.
The yield on the 8.08 percent bond due August 2022, the most-traded government security, was 8.24 percent in Mumbai yesterday, near the highest level since Feb. 8, according to the central bank’s trading system.
The Bombay Stock Exchange’s Sensitive Index rose 0.7 percent while the rupee weakened 0.1 percent to 44.36 per dollar. India’s financial markets are closed today because of Good Friday.
Even as the government targeted faster economic expansion, Goldman Sachs yesterday cut India’s growth forecast for the current financial year because of rising borrowing costs and weak investments.
The economy may grow 7.8 percent in the year ending March 31, less than the 8.7 percent predicted earlier, Tushar Poddar, Mumbai-based chief India economist at Goldman Sachs, said in an e-mailed report.
Poddar estimates the Reserve Bank will probably increase rates by another 1.25 percentage points in 2011, more than the half-point increase predicted earlier. He raised his inflation forecast for India to 7.5 percent from 6.7 percent for this financial year.
The Reserve Bank has boosted rates by 200 basis points since mid-March 2010 in eight moves. The central bank’s benchmark repurchase rate is 6.75 percent. The next monetary policy announcement is scheduled for May 3.
Standard Chartered forecast on April 18 the repurchase rate will rise by 1 percentage point in six months, while Barclays Plc predicted a 75-basis point increase, compared with original calls of 50 basis points.
A government report yesterday showed that the food inflation rate for the week ended April 9 rose to 8.74 percent, accelerating for the first time in four weeks.
Persistent inflation particularly in food products is a cause for concern, Prime Minister Manmohan Singh said yesterday.
Singh is betting on normal rains this year to boost farm production and tame food inflation, which averaged 18 percent in 2010.
The June to September monsoon rain, the main source of irrigation in India, will be normal for a second year, the India Meteorological Department said April 19.
To damp inflationary pressures, Singh’s government aims to cut the budget deficit to 4.6 percent of gross domestic product in the year ending March 31 from 5.1 percent in the previous 12 months.
Last month’s jump in India’s inflation rate was driven by a surge in the cost of factory goods. The price gauge of non-food manufactured products, the central bank’s measure of core inflation, accelerated to 7 percent in March from 6.1 percent in February, according to Goldman Sachs.
Higher salaries have boosted consumer demand for houses, cars and household appliances, stoking price risks.
Salaries in India in 2011 will likely rise the most in the Asia-Pacific region, a survey by Aon Hewitt LLC showed March 8. Spending under the government’s National Rural Employment Guarantee Act of 2005 has surged almost fourfold to 399 billion rupees ($9 billion).
Maruti Suzuki India Ltd., the nation’s biggest carmaker, plans to boost capacity by 21 percent in the current financial year as part of investment plans totaling as much as 40 billion rupees, Chief Financial Officer Ajay Seth said in an interview on April 6. The company’s sales climbed to a record in March.
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