Drought not to impact India's growth

With the worst monsoons since 1972 plaguing India, the country's GDP growth has been pegged by many economists to be below 6%. However, the Indian government and the RBI have been more optimistic as they are of the opinion that India will be able to log in a growth of 6% plus for FY10. What is more, the Deputy Chairman of the Planning Commission Mr. Montek Singh Ahluwalia believes that the drought would not pull down India's GDP growth below the government target of 6.3% and the overall impact would not be as bad as expected earlier. He further added that inflation would ease in the coming months as the rise in food prices was largely due to an increase in speculative activities. This is because the weak monsoons sparked fears that food prices will soar.

Thus, Montek Singh appears confident that prices will stabilize and is hopeful that inflation will not exceed the 5% mark by the end of FY10 as envisaged by the RBI. Incidentally, food prices have soared by 14.8% since the start of the current fiscal. The RBI will be more than happy if inflation does not rise as it will then be able to focus on b0lstering India's GDP growth. Therefore, it will be interesting to see whether Montek Singh's predictions actually materialize. The central bank for one will be keeping its fingers crossed!