Amidst the global economic turbulence that is threatening India's economic growth momentum along with other countries, the World Bank has projected a slowdown in India's economic growth to seven to eight per cent in the next two years.
The World Bank said on Wednesday that India's inflation is expected to ease in the third quarter of this fiscal, a scenario that would eventually allow the Reserve Bank to lower interest rates.
Cautioning that economic growth is expected to slow down to 7-8 per cent in the current fiscal, the World Bank said that high interest rates and structural problems, among others, are affecting the GDP growth.
Special: Will RBI tone down its tight monetary policy? "...it (inflation) is forecast to decelerate from Q3 of FY 2011-12, which would allow the RBI to lower policy rates eventually," the World Bank said in its report, titled India's Economic Update.
Even though continuing slowdown in GDP, induced by tighter macroeconomic policies, would put downward pressure on core inflation, the rate of price rise is unlikely to show a significant decline in the second quarter, it said.
Headline inflation in September was 9.72 per cent, much above the RBI's comfort level.
The Reserve Bank of India (RBI) has hiked interest rates by 350 basis points since March 2010 to tame inflation. The central bank is scheduled to review the monetary policy on October 25.
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tighter monetary policy regime , uncertain investment climate and the base effect of strong agricultural rebound in 2010-11 are contributing to the overall slowdown in economic activities.
"In the next two years -- FY 2011-12 and FY 2012-13-- GDP growth is forecast to reach 7-8 per cent," the report said.
The country had clocked a GDP of 8.5 per cent in 2010-11.
According to the World Bank report, fiscal consolidation and higher interest rates are also likely to have a dampening effect on aggregate demand.
The multilateral lender noted that with the slow growth expected in core OECD countries, India's economy would have to rely on domestic growth drivers.
The slowdown in investment, capital outflows and decline in the stock market point to deeper structural problems, it further said.
Investors are holding back in the face of regulatory uncertainty in environmental clearances, land acquisition laws, tax reforms, the report said.
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