By RAJESH ROY And ROMIT GUHA
NEW DELHI — India’s economic picture in the short term isn’t “rosy” amid a slowdown in reforms, but one can expect inflation to ease and growth to pick up in the latter part of the financial year, a top adviser said Friday.
“There is no getting away from the fact that there has been a slowdown,” Kaushik Basu, chief economic adviser to the finance ministry, said at a conference. “You don’t have to interpret one-month data, but slowdown is certainly staring at the face.”
India will have to live with slow industrial growth in the first half of the financial year that began April 1, and high inflation — around the current level of 7.5% — for next three months, he said.
Mr. Basu said he expects the wholesale price index-based inflation rate to fall below 7% from September, and growth to accelerate from October.
India’s economy is facing its biggest challenge in over two decades. Gross domestic product grew just 5.3% in the quarter ended March 31–the lowest pace in nine years–and industrial production is stagnant. The wide fiscal and current-account deficits and the government’s failure to boost investment have been blamed for the sharp economic slowdown and a rout in the Indian rupee.
In addition, foreign investors–skittish about Europe’s economic turmoil–are moving money out of India. And two ratings firms have warned they may soon downgrade India’s debt to a junk rating.
The developments have mounted pressure on Prime Minister Manmohan Singh’s government to take steps to bolster growth. Mr. Singh, in fact, took charge of the finance ministry earlier this week after Pranab Mukherjee resigned his post to contest India’s presidential elections.
Mr. Basu also said that a few key economic reforms were needed to ensure the economy bounces back. “We need political consensus for it,” referring to the fact that the coalition government needs to have numbers in parliament to push through important measures.
Investors are hoping that the government would act on reforms which could include opening the retail and aviation sectors to foreign investment and allowing diesel prices to rise.
Earlier moves by the government to allow 51% foreign ownership in multi-brand retail and up to 49% stake buy in local airlines by foreign carriers have been scuttled by opposition parties as well as some within the ruling coalition.
Write to Rajesh Roy at rajesh.roy@dowjones.com and Romit Guha at romit.guha@dowjones.com
Article source: http://online.wsj.com/article/SB10001424052702303561504577496032680515406.html?mod=rss_economy
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