India Might Not Be Able To Sustain Record-Breaking Growth

Moody's says deficit and infrastructure issues might halt growth rate.

India's economy is unlikely to continue growing at over 9% due to its hefty fiscal deficit and creaky infrastructure, global credit rating agency Moody's Investors Service said on Jan. 16. "GDP growth has been impressive but it is unlikely to go on at this pace beyond a year," Moody's vice president Kristin S. Lindow said. "The government will have to resolve fiscal deficits ... and boost private-sector participation in the infrastructure sector."

India's economy grew by 9.1% during the first half of the financial year to March 2007, making it the world's second-fastest growing after China.

India's combined fiscal deficit of the federal government and states stands at around 11% of GDP, according to World Bank figures. India's public sector could only fund a small portion of its infrastructure needs, Lindow said. "Much of India's infrastructure is of poor quality and requires enormous amounts of capital for improvements to sustain its economic expansion," the agency said in a report.

Despite rising inflation, she said she did not expect a sharp upward move in rates. "Monetary policy has been tightening gradually for more than two years," she said. "We do not expect a hard landing as India's central bank may prefer to accommodate the growth momentum without choking it off completely."

Local analysts expect the Reserve Bank of India to raise its reverse repurchase rate, the rate paid for deposits from commercial banks, by a quarter of a percentage point to 6.25% in its next review on January 31.

Copyright Agence France-Presse, 2007

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