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Prospects of rate hike to slow down India's growth:Moody's

PTI | Aug 7, 2011, 12.21PM IST

NEW DELHI: Research firm Moody's has said that prospects of further rate hikes by 

the Reserve Bank is likely to slow down the growth of Indian economy  in 2011-12.

It, however, added that headline inflation in the country is expected to remain at around 9

per cent in the coming months.

"With Indian policymakers signalling additional interest rate hikes are needed to cool

inflation, growth will slow through the end of the year," Moody's Analytics said in an article

'Higher Rates Slow Indian Growth'.

The research firm had earlier forecast the Indian economy to grow by 8.2 per cent in 2011-

12, compared to previous fiscal's 8.5 per cent.

"The Prime Minister's Economic Advisory Council revised its Indian growth forecast down

to 8.2 per cent... and is now in line with our 8.2 per cent estimate," it said.

In its Economic Outlook for 2011-12 released last week, the PMEAC projected growth to

slow down to 8.2 per cent, far below the government's pre-Budget survey expectation of 9

per cent.

In its annual monetary policy review, the RBI had also painted a gloomy picture and said

that Indian economy would expand by only 8 per cent this fiscal.

The RBI has already hiked interest rates 11 times since March, 2010 to curb inflation.

Headline inflation stood at 9.44 per cent in June.

"Tighter monetary policy is working to cool domestic demand. Manufacturing grew at the

slowest pace in 20 months in July...," Moody's Analytics said.

It added, "Even though policymakers are engineering slower growth, the country's robust

expansion remains firmly on track, and no hard-landing is expected".

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Moody's, however, cautioned against spiralling inflation and said rising prices remain the

prime risk India's robust medium-term growth projections.

"Inflation remains stubbornly strong, despite the central bank's aggressive monetary 

tightening over the past year... Inflation will sustain its current 9 per cent pace in coming

months, before tighter monetary policy and rising agricultural production reduce food anddemand-side inflation by year's end," Moody's Analytics said.

The PMEAC's outlook had also projected inflation to remain stubborn till at least October,

mainly on account of high global commodity prices.

Link: http://daily.bhaskar.com/article/NAT-IDP-sunday-special-scams-put-indian-economy-on-backfoot-1846614.html

Sunday special: Scams, inflation put Indian economy on backfoot 

Source: Dailybhaskar.in | Last Updated 15:21(13/02/11)

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New Delhi: The Budget session of Parliament is scheduled to start on February 21 and the General

Budget will be presented to Lok Sabha on February 28. The Finance Minister will discuss the

government’s policies and programmes for the next financial year in the Budget session.

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The government will struggle to contain fiscal deficit to the projected level this year as several scams

– mother of all previous scams — have caused a loss to country’s revenue and expenditure balance.

In recent years, the Union Budget has been losing its policy-making primacy — and rightly so —

 because important ones are being rolled out on-the-go.

This time it is different, because of the scams, macro- and socio-economic backdrop, high foodinflation, tight liquidity, slow pick-up in investments, deteriorating current-account position, risk to

fiscal consolidation, increasing dosage of monetary tightening, scams and ensuing state assembly 

elections.

 All of this means the Union Budget this time would be a seminal event.

The trade-off between growth and inflation, loose fiscal policy, tight monetary policy and the revenue

loss due to the scams is tough for Finance Minister Pranab Mukherjee.

India's fiscal deficit from April to December in 2010 was Rs 3.81 trillion ($83.08 billion), or 44.9 per

cent of the full-year target, according to a government report.

Net tax receipts were Rs 3.91 trillion and total expenditure was Rs 7.87 trillion during the first ninemonths of the current financial year to end-March.

The figure says that going ahead and bringing down the fiscal deficit to the projected level in fiscal

2011-12 will be a challenging task for the government.

India is seeing one of the worst examples of poor government control over various departments and

it has resulted in a list of multi-billion scams like Commonwealth Games, the second generation (2G)

mobile telephony spectrum allocation, Adarsh Society, multi-crore food grain scam in Uttar Pradesh

(UP) etc in this year alone.

The year 2010 is being said as the year of scams and the biggest-ever corruption cases in India have

 been unearthed this year. What India has lost in four big scams would have helped the economy to

contain the fiscal deficit of two consecutive financial years, a report says. According to an estimate,

India has lost Rs 5 lakh crore due to the four scams. The amount is less than half of India's annual

expenditure. Let's see how these scams have out Indian economy on the backfoot-

1) 2G Spectrum scam -

Indians have heard about a number of scams, but this is the biggest-ever known or exposed scam in

the country with the government losing Rs 1.76-lakh crore - thanks to former telecom minister A 

Raja. According to the CAG report, A Raja had evaded norms at every level to cause a total loss of Rs

1.76 lakh crore to the exchequer.

India could have used the amount for -

a) Making four other projects like Golden Quadrilateral road project

 b) Buying 30 lakh buses for public transport system

c) Making 1868 dam like Nagarjuna Sagar dam

d) Opening 25 lakh government hospital across the nation

e) Opening 30 lakh schools in the country 

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f) Buying 35 crore computers for students in India

g) Buying 504 fighter jets to make the India's security system stronger

2) Commonwealth Games scam -

 Another feather in the cap of Indian scandal list is Commonwealth Games scam. It was initially estimated that out of Rs 70000 crore spent on the Games, only half the said amount was spent on

Indian sportspersons.

3. Adarsh Housing scam -

Not just politicians and senior Army officers, but even top Maharashtra bureaucrats seem to have

aided and abetted what is perhaps the biggest case of land grab in the state in recent times.

 A close look at the final 104 allotments reveals that the builder-politician-bureaucrat nexus has

caused a loss of Rs 900 crore in the Adarsh Hosuing scam.

4. Rs 35000 crore foodgrain scam in UP -

The food scam in Uttar Pradesh could well turn out to be the mother of all scandals and indications

are that it could well be worth Rs 2 lakh crore.

 A large stock of food grain meant for distribution under the Antyodaya, Annapurna and Mid-Day 

Meal schemes was smuggled and sold in Bangladesh, Nepal and other countries in connivance with

top officials of the state and the Centre between 2001 and 2007.

CBI claims more than 200 state and central government officials are involved.

 According to the report, India lost approximately $213 billion in illicit financial flows from the

country between 1948 and 2008. “These illicit financial flows were generally the product of:

corruption, bribery and kickbacks, criminal activities, and efforts to shelter wealth from a country’s

tax authorities.” The report has put into words and quantified what everyone in India knew about.