India Economic Growth To Accelerate In 2011 - Standard & Poor's Unit

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EW DELHI -(Dow Jones)- India's economic growth will accelerate in 2011, driven by strong industrial output and rising exports, but persisting price pressures, coupled with a weak global recovery, still cloud its expansion prospects, rating agency Crisil said Tuesday.

Crisil, which is the Indian unit of Standard & Poor's, expects Asia's third- largest economy to grow 8.1% in 2010 and 8.3% in 2011.

The Indian economy has been expanding rapidly, powered by strong domestic demand and robust industrial activity that helped it weather the global financial crisis with relative ease.

The federal government projects the economy will expand 8.5%-8.75% in the current fiscal year that began April 1, after clocking a 7.4% rise in the last fiscal year, the second fastest among all major economies.

However, high inflation, which has eased lately but still hovers at unacceptably high levels, could hurt the economy.

"In our opinion, consumer price index inflation should continue to recede from current double digits as food inflation comes down on the back of improved farm output and as the RBI's (Reserve Bank Of India's) tightening measures tame non- food inflation," D.K. Joshi, chief economist at Crisil, said in a report.

The wholesale price-index based inflation rate--the country's main price guage--eased to 8.51% on-year in August from 9.78% in July, but continues to concern authorities, who have failed to pull it down much despite sharp policy tightening measures.

India's resurgent exports and the robust capital inflows will further boost growth in the economy, Joshi said.

India's April-August exports rose 28.6% to $85.27 billion from a year earlier. The government has set an export target of $200 billion for the full fiscal year to March 2011.

Capital flows have also been robust, as global investors eye the Indian markets, attracted by the economy's strong growth and high interest rates.

Foreign fund flows have already crossed $17 billion in 2010, with more than a quarter still to go, nearing the milestone $17.46 billionIndia saw for all of 2009.

"We believe a slow economic recovery in other parts of the world will make India a more attractive destination for inbound investment this year," Joshi said.

The government will be able to meet its budgeted fiscal deficit target of 5.5% of gross domestic product this fiscal year, helped by the highly successful telecom and Internet bandwidth auctions that filled the government's coffers by about INR750 billion more than anticipated, Joshi said.

The RBI will continue with its gradual rate hikes to keep a tight leash on liquidity and tame inflation, he added. The central bank has raised its two main policy rates five times since March.

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