India to see high inflation, slower growth: NCAER

High inflation and slowing down of growth have been forecast by an economic think-tank foe scenario improves, the inflationary pressures are likely to ease in the longer-term, National Council of Applied Economic Research (NCAER) said in its macrotrack monthly report.

"The inflationary pressure is more intense on primary articles and indicates the potential for easing of the pressure as the supply scenario improves," it said.

 In the longer-term, the country's policy makers will have to address the twin concerns of demand pressure and subsequent high rate of inflation, NCAER said.

 Reflecting an unprecedented rise in global crude and commodity prices, India's inflation touched a 13-year high of 11.42 per cent this week, drawing instant monetary, fiscal actions from its policy makers.

 While the government imposed trade restrictions to tame the inflationary pressures, the central bank announced a series of hikes in its key-rates.

 The slow-down in growth on account of the adverse gloabl factors may be offset by the expansionary fiscal policy, the report said, however, adding," the latest turbulance in the crude oil market is an important factor that needs to be watched as the year progresses".

A cooling US economy has helped the country sustain the economic growth momentum in the second half of last fiscal, NCAER said.

India's external sector, though relatively small, is gradually expanding in terms of the international financial and trade linkages," it said.

Meanwhile, the net impact of government's Rs 71,000 crore (Rs 710 billion) loan waiver scheme and the recommendations of Sixth Pay Commission, is likely to stimulate the consumption demand in the months ahead, NCAER said.

"This will also reduce the cost-push effect of rising commodity prices through lower indirect tax rates," it said.

The Reserve Bank's monetary policy, which primarily aims to hold off the inflationary pressures, has provided an attractive environment for capital inflows, it said.

RBI deputy governor, Rakesh Mohan, said the central bank has stepped up its monetary surveillance given the changed economic conditions both domestically and globally.

However, the apex bank has not seen any "material changes" in the domestic financial conditions after the last week's monetary action, Mohan said.

Inflation: The silent killer!