Indian economy may perform better in Q2: Barclays

The global investment banker projected a growth rate of 7.5%for 2008-09 with risks tilted to the upside

The Indian economy is expected to perform better in the second quarter (July-September 2008) and is likely to record a growth rate of 8.5%, up from 7.9% witnessed in the first quarter, says an international investment banker.
“In Q2 of the current fiscal, GDP growth is likely to be about 8.5%,” Barclays said in its recent Emerging Markets Research report.
According to the global investment banker, the country’s annual growth is running well above 8% and the first quarter growth rate of 7.9% is likely to be revised upwards by 0.3-0.5 percentage points.
However, Barclays projected 7.5% growth rate for 2008-09 with “risks tilted to the upside.” India recorded 9 per cent Gross Domestic Product growth rate during 2007-08.
RBI forecasts a GDP growth rate of 8% in the current fiscal, while the Prime Minister’s Economic Advisory Council expects the economy to rise by 7.6%.

Inflationary spiral

Referring to the inflationary spiral, the investment bank has said demand-side pressures on inflation would persist for the next one-two quarters and the apex bank would continue to keep the liquidity conditions tight over the next 3-6 months.
The banking regulator meanwhile, in its Currency and Finance 2006-08 report, has indicated that it is important in the present scenario to show continuously “a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations.”
Inflation which is reining over 12% is still way above the RBI’s projection of 7% by the end of the current fiscal and the regulator has in phases raised the Cash Reserve Ratio (CRR) and reserve repo rate to 9% to tame rising inflation.