Indian economy to grow 8.3% in 2010: OECD

A grouping of developed nations the Organisation for Economic Cooperation and Development (OECD) today projected 8.3 per cent economic growth rate for India in 2010 and a slightly better 8.5 per cent expansion next year.

Calling for further tightening of monetary policy to tackle rising inflationary pressures and avert "asset-price bubbles", OECD said the country needs to guard against the overheating of the economy.

Prime Minister Manmohan Singh had said on Monday that the economy would grow at 8.5 per cent rate for the current fiscal ending March 31, 2011.

"A boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy in some non-OECD countries, including China and India, to counter inflationary pressures and reduce the risk of asset-price bubbles," OECD said in its Economic Outlook report released today.

The Reserve Bank of India (RBI) is already embracing a tight monetary policy and recently hiked its key rates.

Inflation for April stood at 9.59 per cent while the food inflation is hovering at over 16 per cent.

"Timely policy action to limit the scope for second-round price increases is therefore required. Monetary policy normalisation is also important in light of relatively modest fiscal consolidation," OECD said.

According to the report, the expected rebound in agricultural activity should help limit further increases in food prices, which have been a major contributor to recent high inflation.

However, underlying inflationary pressures are likely to persist given the strong outlook for demand.

"With agricultural output expected to rebound sharply, economic growth should be strong in the near term before moderating to around trend rates," it noted.

In April, the RBI hiked repo and reverse repo rates (the rates at which it lends to and borrows short-term funds from banks) by 25 basis points each to 5.25 per cent and 3.75 per cent, respectively. These rates were hiked by an identical margin on March 19.