India’s Economy Affected By Inflation

02 August 2012 23:00 - Lucy Williams

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India’s Economy Affected By Inflation

The Indian economy will face further issues as rising inflation affects economic growth. A recent report released by Morgan Stanley Research stated “we believe that India will continue to face stagflation-type environment for a few more months, the government’s loose fiscal policy and persistent strong rise in real rural wage growth without t a commensurate increase in productivity growth is at the heart of the current stagflation-type environment”.

Indian economic growth has declined however inflation has begun rising resulting in the Reserve Bank of India lowering the economic growth projection down to 6.5 percent. The country’s growth forecast had been initially estimated at 7.3 percent but increasing government expenditure threatens economic stability.

The report goes on to say that “monetary policy has a limited role in this stagflation-type environment. Moreover, the inflation outlook remains challenging. Indeed, given the poor progress of the monsoon we believe that food and overall inflation will likely accelerate in the coming months”. Predictions have been made about RBI policy decisions for when they next meet in September at a monetary policy review and it is expected that the central bank will keep policy rates unchanged.

In other news, the Indian economy welcomes in P Chidambaram as finance minister who is expecting to jumpstart the Indian economy. It is hoped that he will introduce some much needed reforms that should hopefully prevent the economy from sliding any further and stop a free-falling rupee.

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Related Links:
• Reserve Bank Of India
Official Website

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