ADB may raise India's growth and inflation forecast

Multilateral lending agency Asian Development Bank today said it is likely to revise upwards by the September-end India's growth and inflation forecast, which is 8.2 per cent and 5 per cent respectively for the current fiscal.

"After seeing the high inflation in the first half of the fiscal, we plan to revise upwards the inflation forecast above 5 per cent in our next Economic Outlook slated for September 28," ADB Chief Economist Jong-Wha Lee said here.

Lee said inflation in India is coming primarily from the supply side and the double-digit food inflation is impacting the lower middle class the maximum as their share of income on food and beverages is high.

The economist was speaking to reporters after the launch of ADB's flagship annual statistical publication, Key Indicators: For Asia and the Pacific 2010, with a special chapter on 'The Rise of Asia's Middle Class'.

Without hinting at the direction India's growth outlook will be revised, Lee said India was doing well in reducing poverty and nurturing middle class for sustainable growth, and must focus on providing quality education and infrastructure.

On the Reserve Bank's stance on checking inflation, he said that "tight monetary policy is the right step" but warned of excessive hike in rates "as raising rates would also attract more capital inflows" and related problems.

Besides, he said growth should also be a concern for RBI while trying to contain inflation. He contested the view that high inflation is unavoidable during high growth, which was recently ascribed to by Finance Minister Pranab Mukherjee.

According to Lee, if Indian economy grows continuously improvement in agricultural productivity and building the country's infrastructure could result in lowering inflation and with a sustainable economic growth.

Further, he said India's fiscal and budget deficit are high and should press for fiscal consolidation.

"Withdrawal of fiscal stimulus is the right direction ahead ... It's only a matter of timing and speed," Lee said.