Cutting the deficit next year isn't impossible, but it's not going to be easy in the current political setting. |
India's economic reforms remain a story of incremental changes at a glacial pace. |
Industrial activity may moderate this year but will still remain strong. Monetary tightening by the central bank has raised concerns about the growth outlook. |
Infrastructure spending and investment currently underway should remain supportive of industrial performance. |
Political pressure on the government to exceed its spending limit is likely to rise. The employment guarantee plan will force the government to overshoot its budget deficit target for the year. |
There will be some moderation next year. Still, I see the economy averaging a 7 percent plus growth over the next two three years. |
These are impressive numbers. Underlying growth momentum still suggests that the central bank should continue with policy tightening. |
These factors suggest the need for higher rates but, surprisingly, the bank avoided any explicit indications of the higher risk of demand-driven inflationary pressures. |