Inflation poses main challenge to Indian economy, experts say

The main risk which the Indian economy is facing in the coming quarters lies in inflation, said experts Tuesday on the sidelines of an event by Financial Express.

While expressing optimism to government-set GDP growth aim of 8. 5 percent in current fiscal year, C. Rangarajan, chairman of Economic Advisory Council to the Prime Minister, told Xinhua that inflation now is the major concern of India's central bank and its No. one task is to contain inflation.

The main risk the Indian economy faces now is inflation and this should be watched closely, said Stuart A. Davis, chief executive officer with HSBC in India.

Indian headline inflation topped 11 percent in March and is expected to be around 11 percent in June due to fuel price deregulation.

Davis said domestic demand of India is strong and it's not the case for the Indian economy to dip despite worries of the second one in other economies.

The sharp drop of growth rate with industrial production in May resulted from bottlenecks at the supply side and it's a shot-term phenomenon, according to Davis.

Kalpana Morparia, chief executive officer with J.P. Morgan in India, also spot inflation as the main risk with Indian economy and said the government has to walk the subtle balance between growth and inflation.

India also faces the risk of capital flow swings amid volatile world market and political risk from possible stupid political decisions, said Adil Zainulbhai, managing director with McKinsey's India operations.

The Indian central bank has adjusted up key lending interest rates by 75 basis points in three times so far this year in a bid to contain double-digit inflation.

Source: Xinhua