GDP forecast down to 7.6%, inflation seen at 7% by Mar

The Reserve Bank of India (RBI) today lowered the economic growth forecast to 7.6% for the current fiscal even as it expressed hope that inflation will start coming down from December.

"Slower global growth will have an adverse impact on domestic growth, particularly on industrial production, given the rising inter-linkages of the Indian economy with the global economy," RBI said in its Monetary Policy Review.

The RBI had earlier projected the Indian economy to grow by 8% in 2011-12, lower than 8.5% recorded in 2010-11.

"While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found," RBI said.

Besides inflation, the RBI said slowdown in project investments was also impacting growth.

The overall inflation has remained above 9% since December 2010. It was 9.72% in September.

"Elevated inflationary pressures are expected to ease from December 2011. The projection for WPI inflation for March 2012 is kept unchanged at 7%," RBI said.

The RBI also indicated that it might not go in for another rate hike in its mid-quarterly review in December 16, provided the inflation does not shoot up further.

"If the inflation trajectory conforms to projection, further rate hikes may not be warranted," RBI said.

It said that concerted policy focus is needed to generate adequate supply response in respect of items such as milk, eggs, fish, meat, pulses, oilseeds, fruits and vegetables.

"Structural imbalances in protein rich items will persist. Production of pulses this year is expected to be lower than last year. Consequently, food inflation is likely to remain under pressure," RBI said.

Food inflation, which account for 14% in the overall inflation, stood at a six month high of 10.60%.