India's 2011 growth propspects strong, inflation a hurdle: S&P

After rebounding strongly in the second half of 2009, India's economic growth has continued along its robust path so far in 2010 and is likely to lift further in 2011 provided risks around high inflation and the currently fragile global recovery can be managed, says ratings agency Standard & Poor's, in a new paper, India's Strong Growth Looks Set To Continue In 2011, But Inflation Remains A Worry.

"We expect India's economy to grow by 8.1 per cent based on a steep gain in industrial output, and resurgent private consumption, investment, and exports. Were these scenarios to continue, growth would lift further to 8.3 per cent," said Dharmakirti Joshi, chief economist, CRISIL Ltd, a subsidiary of Standard & Poor's.

Joshi also expects the Reserve Bank of India (RBI) to continue gradually raising interest rates and to keep a tight leash on liquidity to tame inflation. Meanwhile, higher-than-expected revenues from 3G spectrum sales and the positive kick to tax revenue from sustained economic recovery will keep the fiscal deficit within the budgeted 5.5 per cent of GDP in the current fiscal year, which began in April 2010.

Growth is also expected to become more balanced; government spending is declining as fiscal stimulus measures are unwinding, and private spending is picking up.

In 2010, favorable monsoons (the rains that fall from June to September) should lead to strong farm production, which will help drive economic recovery and bring down food inflation.

While inflation remains a concern Joshi expects it will recede in coming months.