The Indian economy will grow around 9 per cent in the first quarter this fiscal, Dr Kaushik Basu, Chief Economic Advisor to the Finance Ministry, has said.

Also, the economic growth in 2010-11 is expected to be higher than the 8.5 per cent projected by the Finance Ministry in February this year, Dr Basu told reporters here on Friday. This growth forecast comes close on the heels of the International Monetary Fund (IMF) raising its India GDP growth estimate for 2010-11 to 9.4 per cent from 8.8 per cent earlier.

Dr Basu, however, declined to comment on whether the Reserve Bank of India (RBI) would go in for further policy rate hike at its upcoming policy meeting on July 27 to bring down inflationary expectations in the economy.

Inflation scenario

“We do expect that the RBI has had a gradual policy measure that it has been taking over a time. I have no idea what RBI will do in its next round. But the policy of slow exit from the earlier stimulus set of measures that the RBI had put together is broadly the trajectory we are on. We are broadly on the right policy track,” he said. On inflation, Dr Basu said that he expects the overall inflation to be around 5 per cent by end March 2011.

“The two rounds of fresh data on inflation that have just come in – on July 15 (weekly food inflation) and on July 14 (monthly WPI inflation) – confirm what we have been seeing now in recent weeks – food inflation continues to slow down and non-food inflation is on a slow pick up,” he said.

On food inflation, Dr Basu said that it would be reasonable to predict that the food price inflation that will be announced two weeks from now, on July 29, will be substantially lower than what the inflation is right now.

An analysis of the data reveals that the overall food price index rose rapidly last year from June to November 2009. It peaked in the week ending November 27 when it reached 296.

The latest weekly data on food just released pertain to the week ending July 3, 2010, The index now stands at 296.

“This means that, on average, food price inflation has been zero since the end of November 2009. Of course, there are certain food items for which prices have risen (but these are matched by others for which prices fell). Also, the average price now compared to one year ago shows an inflation of 12.81 per cent. This is much less than the inflation of over 21 per cent at the end of November 2009, but nevertheless the inflation (year-on-year) is high,” Dr Basu noted.

Petro decontrol

On the effect of petroleum decontrol on overall inflation, Dr Basu said that the immediate term upward pressure on prices that was expected from this move has already partly registered in the June inflation figures.

“We will see more of this in the July figure. Thereafter the benefits of the decontrol should begin to set in and, I continue to maintain that six to nine months from now the overall price index would be lower than it would be if there were no decontrol of petroleum and diesel,” he said.