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Indian economy to surge ahead but inflation a “threat”

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by Kay Mitchell

The Indian economy is projected to expand 8.6% in the current fiscal year, according to Government estimates.

The Indian economy, which is the world’s second fastest-growing major economy behind China, grew by a staggering 8.9% on an annual basis in the July to September period.

However, the economy faces headwinds – the country’s inflation rate is the highest among the Group of 20 leading nations, due to soaring food costs.

Annual food inflation has surged, causing major problems for the 450 million people who live below the poverty line in the country.

This has led the Reserve Bank of India (RBI) to raise key interest rates for the seventh time in less than a year, in a bid to curb inflation – which currently stands at 8.4%.

Prime Minister, Manmohan Singh, has warned that the country’s rapid economic growth is under “serious threat” from inflation.

The PM said taming inflation was a matter of urgency and suggests the RBI will raise interest rates again next month.

However, analysts believe that rate hikes could hit growth and reduce the chances of the economy achieving double-digit expansion.

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News posted: February 7, 2011

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