It was meant to be the cornerstone of relations between the world's two biggest democracies, but a lucrative nuclear deal that was to welcome US firms into India's $150 billion atomic power market is clouding otherwise warming bilateral ties.While the 2008 US-India civil nuclear agreement backed by then President George W. Bush elevated relations and ended India's nuclear isolation, it has yet to benefit private US firms which have kept away, deterred by a stringent Indian law on accident liability that could force such firms to pay out billions in the event of a nuclear accident."Two reactor sites have now been set aside for American companies in future," said a senior US official travelling with Hillary Clinton during her visit to India."It would be a very serious problem if India were to come out with regulations that were not in fact in compliance with (a global convention governing nuclear liability) and then left us out in the cold not being able to profit from all of the hard work that we've put into that," the official added.Clinton on Tuesday pressed India to accede to the multilateral convention to assure its suppliers any liabilities would be in line with international norms.The impasse has meant rival state-backed nuclear reactor makers from Russia and France have raced ahead in tapping into India's nuclear power market, leaving Washington to lobby New Delhi to water down the law that was passed last year.While overall ties are on an upswing, the standoff over nuclear trade is being seen by many as nettlesome, potentially slowing cooperation between two of the world's biggest markets."As it stands it's a big problem because the United States had put in so much political capital into the deal and its commercial interests are being hurt," said Robinder Sachdev, the head of strategic think tank ImagIndia Institute."Any bad blood from this could spill over into other aspects of the wider ties which were otherwise doing well."Parliament passed laws in August to open up the domestic nuclear market. But its nuclear liability law also gives the right to seek damages from plant suppliers if there is an accident.India is the only country to have such a provision, which was added after wide political pressure, partly stoked by painful memories of industrial calamities such as India's Bhopal disaster in 1984 when plumes of poisonous pesticide from a US-run Union Carbide plant killed thousands.That move has made the entry of firms like General Electric and Westinghouse Electric, a US-based unit of Toshiba, into India uncertain unless the country provides more clarity on compensation liability for private operators.On Tuesday, US Secretary of State Hillary Clinton told Indian officials to amend the law but analysts say it will be almost politically impossible for New Delhi to water it down."The penny will finally drop on the Americans as they realise the Indian liability law cannot be diluted and they will have to look for other get-arounds like factoring in liability in the pricing structure (for reactors)," said Siddharth Varadarajan, strategic affairs editor of The Hindu newspaper.The United States has also pressed India to accede to the multilateral Convention on Supplementary Compensation for Nuclear Damage (CSC) to assure its suppliers any liabilities would be in line with international norms.Vital PartnerIndia is seen by the United States as a key geopolitical player for stability in South Asia, as well as a counterweight to a rising China. Its vast economy, along with China's, is seen as a locomotive that can help revive moribund western economies.India, which conducted nuclear tests in 1974 and 1998, has so far proven to be a responsible and benign nuclear state, though a bitter rivalry with fellow nuclear-armed Pakistan has made nuclear proliferation a latent risk in the subcontinent.The 2008 civilian nuclear pact scrapped a 30-year U.S. ban on supplying India with nuclear fuel and technology but it was criticised for undermining the global nuclear non-proliferation treaty which states that only nations which renounce nuclear arms qualify for civilian nuclear assistance.Beyond the nuclear sphere, India has pledged to buy billions in US military hardware while bilateral trade is up from $5.6 billion in 1990 to $36.5 billion in 2009/10."Indian investments in the U.S. are higher than American investments in India which shows the relationship is well-rounded," said Lalit Mansingh, a former Indian ambassador to Washington.Though the risk of this cooperation unravelling is low, the logjam over the Indian liability law could slow progress."There is concern and disappointment both at the government and industry level," said Sachdev. "It's more than an irritant."(Reuters)
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India is considering setting up a sovereign wealth fund with more than $10 billion in assets to buy energy assets abroad to feed growing domestic demand, senior government officials told Reuters on Wednesday.But the sources said the plan to create the country's first sovereign wealth fund (SWF) was still at an early stage amid concerns from the central bank about setting aside part of the country's foreign exchange reserves for the scheme."There is a group which is examining this but no decision has been taken," Montek Singh Ahluwalia, deputy chairman of the powerful Planning Commission of the Indian government, told Reuters.India's foreign exchange reserves stood at more than $314 billion as on July 8."The original size of the fund was $10 billion but since commodity prices have increased in the meanwhile, we believe that the size of the fund, if approved, could be increased," said another senior government official who is part of the group examining the proposal. The official declined to be identified."The final figure will only be decided after wider consultations," he said.A senior official at the Reserve Bank of India, meanwhile, said the central bank was worried about financing a sovereign wealth fund, given the large amounts of capital the country needs to fund a massive current account deficit.That deficit was 2.6 percent of gross domestic product for the fiscal year ending in March 2011."There is no formal exchange on this," the senior official told Reuters. "We have to see the proposal. But we have already made our stance clear that we can't use dollar reserves, which is borrowed money for setting up a SWF.The proposal to set up such a fund was first mooted by the oil ministry a few years ago over concerns that India was falling behind China in acquiring energy assets abroad, particularly coal änd gas fields and mining blocks in different parts of the world, including Africa.Unconventional energy sources such as shale gas, coal-bed methane and oil sands are also attracting increasing attention from China and elsewhere as traditional oil supplies dry up.The Indian economy is expected to grow by nearly 8 percent in the current fiscal year ending in March, according to a Reuters poll released on Monday, and its hunger for energy is expected to keep pace with it."India is basically a current account deficit country and there is a good amount of demand for imports," said another senior official at the Indian central bank.We need our foreign exchange reserves for tiding over balance of payments problems and so our stance has been to not use foreign exchange reserves for other purposes."Option Of Budgetary AllocationAnother option being considered by the government is to set aside funds from its budget to seed the sovereign wealth fund."We are looking at budgetary allocations ... but first everybody has to be on board and the proposal has to be accepted before being finalised", said the government official.However, funding the SWF through budgetary allocations may be difficult for the government in a fiscally strained year, and next year the government may decide to spend more on populist schemes as it heads into elections in Gujarat and Uttar Pradesh, seen crucial to the Congress party's political fortunes.The sovereign wealth fund plan was due to have been discussed by an inter-ministerial group this month but the talks were postponed.(Reuters)
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The government needs to raise prices of subsidised fuels to achieve the budgeted fiscal deficit target of 4.6 per cent of GDP for the current fiscal year to end-March 2012, the Prime Minister's economic adviser C. Rangarajan said on Thursday.New Delhi has budgeted a fuel subsidy bill of $5.2 billion for 2011-12, assuming oil prices below $100 per barrel. Oil prices are near $118 a barrel after OPEC members on Wednesday failed to agree to raise output.Analysts say an increase in prices of diesel, kerosene and cooking gas will help the government cap its subsidy bill, as every $10 increase in oil prices has the potential of increasing the fiscal deficit by around 0.2 percent of GDP."The review of administered prices particularly of petroleum products is necessary," Rangarajan said. "It is required primarily from the point of view of maintaining the fiscal deficit.""Prices could be raised to the extent the upstream companies can provide support to (oil marketing) companies," he said.The ruling Congress party has been on the back foot for the past year over rising prices of food and fuel, which have triggered street protests, and raising diesel prices would be politically unpopular for a party whose core voters are rural and poor.It has repeatedly sidestepped a decision on lifting state-set prices of fuels, fearful of stoking inflation at a time when public anger is running high over graft scandals.The government urgently needs to raise fuel prices to meet its fiscal deficit target for the current fiscal year as sagging economic expansion is seen depressing growth in tax revenue, analysts say."The government has to either raise prices or give us higher compensation. Our borrowings are rising by 20-25 billion rupees a month. It will be difficult to sustain," said R.K. Singh, chairman of BPCL, India's second-largest state-run refiner.He said BPCL's current borrowings stood at Rs 230 billion.India has allowed state-run oil firms to fix the price of petrol but continues to control the prices of diesel, kerosene and cooking gas to protect the poor and keep inflation in check.Rangarajan, a former governor of the Reserve Bank of India, favoured maintaining subsidies at the budgeted levels. India will spend 1.44 trillion rupees ($32 billion) on subsidies including those on fuel."Cutting the expenditure must be essential for maintaining the subsidies at (the) budgeted level," he said.Rangarajan also said headline inflation would likely ease slowly until October, but added a normal monsoon will moderate food inflation in a few months.India's annual food inflation accelerated to 9.01 percent in the week to May 28, its highest in nine weeks, from 8.06 percent in the previous week.He expects headline inflation at 6.5 percent by end-March. It was at 8.66 percent in April -- above the central bank's comfort zone of around 5 percent.
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Inflation is expected to remain high until end-December and is impacting private investment, while lingering concerns over the euro zone sovereign debt woes are clouding the outlook for its exports, the finance minister said on Wednesday.Annual headline inflation accelerated to 9.44 percent in June, driven by higher prices of manufactured goods and fuel, adding pressure on the Reserve Bank to raise rates next week despite signs of slowing growth in Asia's third-largest economy."Headline WPI monthly inflation will likely remain relatively sticky and persistently high between August-December 2011 and start to fall thereafter," Pranab Mukherjee said in a statement issued to a select group of newspaper reporters, seen by Reuters.The RBI has raised rates 10 times since March 2010, ranking it among the most aggressive central bank in the world, and is expected to raise rates again by 25 basis points at its quarterly review on July 26.Still, India's inflation rate remains far higher than in many other big emerging economies."We expect that the headline WPI inflation should moderate to 6 to 7 percent by March 2012," Mukherjee said.High inflation is pushing up the cost of credit for firms as well as escalating their input costs by inflating their spending on raw materials and wages.Aon Hewitt estimates Indian companies will have to pay 13 percent more to employees in 2011.Growth in private investment slumped to 0.4 percent in the quarter through March from 7.8 percent in the previous quarter, with analysts predicting any upturn unlikely before price pressures moderate."Corporate investment is moderating ... capex of the corporate is led by profit cycle, which was affected somewhat by cost escalation of input," Mukherjee said."With a pick up in foreign direct investment (FDI) happening, there is every reason to maintain the investment-to-GDP ratio stable or higher than the 2009/10 levels."In 2010/11, India received 25 percent less foreign direct investment than the previous year, but in April-May, the first two months of the current fiscal year, inflows were up an annual 77 percent at about $7.8 billion.Euro Zone WorriesWhile high inflation and rising interest rates are crimping domestic demand and slowing down the economy, worries over the euro zone sovereign debt crisis is likely to weigh on Indian exports -- which have been a bright spot.Indian exports to the European Union is estimated to have grown 20.5 percent to $31.5 billion during April-December 2010 from a year earlier, the latest estimate from the trade ministry showed.The European Union accounts for nearly 19 percent of India's total exports.India's exports in June rose an annual 46.4 percent to $29.2 billion, after posting a record 37.6 percent growth in the 2010/11 fiscal year.However, Mukherjee cautioned this trend may not continue."On the external front there has been a surge in demand for exports from emerging markets and developed countries, of late. This may not be sustained on account of the euro area and slowdown in global trade volumes and the effects of commodity prices."(Reuters)
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Leadership and succession are two of the more important management issues in any organisation, and in many ways they are intertwined. Finding the right leader to head a company can make or break it. When Lou Gerstner was picked up to rescue IBM, there were many eyebrows raised. After all, nothing in Gerstner's background gave any clue as to why he would do well as the chief of a computer behemoth that had got into deep trouble and was on the brink of bankruptcy. Gerstner had a sterling record but he had primarily had experience in consulting (McKinsey), financial services (American Express) and Fast Moving Consumer Goods (RJR Nabisco). He had never worked in the technology industry, which was then going through a major upheaval.Meanwhile, there was a lot of hype about how Carleton Fiorina would revive the sleepy Hewlett-Packard. Carly had an impressive track record in telecom (AT&T and its spinoff, Lucent) and, more importantly, seemed to have just the right profile to take the fabled but troubled HP into a new era. Unfortunately, while Fiorina raised the public profile of the company, her misses and mistakes were far more apparent than the things she did right. Indeed, her successor, a low key Mark Hurd, proved to be better for HP.Even if you find the right leader once, the bigger problem that often crops up is finding the right successor to a great leader. Often the leaders who are about to retire attain legendary status because of their achievements. Finding someone to fill those shoes is a hugely complex job. It is not helped by the fact that the new person being chosen is often compared with his predecessor from day one - and people tend to forget that even the original leader made mistakes in the early years.When Ratan Tata took over, there were plenty of people who expected him to fail. After all, Ratan was succeeding the legendary J.R.D. Tata, and many of the things he did immediately after taking over seemed rather odd. For one, he took on the old guard — Rusi Mody, Darbari Seth, Ajit Kerkar — all of whom had built legendary mini empires within the Tata group. More importantly, at the time of taking over the conglomerate, Ratan Tata didn't have the most impressive of track records.Today, as he prepares to hand over the reins of the group to a successor, there are few who would doubt his business acumen, vision or legacy. Many consider him to be the greatest businessman of this era. He proved a worthy successor to JRD in every way. The big problem everyone foresees is that he has set the bar so high that it might be almost impossible for any successor to do half as well as he has done.At the moment, corporate India is facing quite a succession crisis. A number of exceptional leaders who have carved out impressive empires are about to step down. In Infosys, N. R. Narayana Murthy will retire as the chairman. With co-founder Nandan Nilekani already out of the company to pursue the UID project, there is a lot of worry that the next chairman of Infosys will lack the charisma and overall vision of Narayana Murthy. Especially since, most of the other founders of Infosys are also fast approaching the retirement age.In Larsen & Toubro, A. M. Naik is preparing to retire finally after a long innings full of achievement and glory. And there is no successor in immediate sight. There are talks that Naik will restructure L&T so that independent businesses are handled by different leaders, and no one presides over the multidimensional company as a whole. Also, other larger than life leaders who are expected to retire over the next four or five years include P.R.S. Oberoi, Shiv Nadar, Y. C. Deveshwar among others. Each of them have built their businesses over several decades and scorched a path that is hard to follow for anyone. Of course, the hunt for Ratan Tata's successor is already on.What prevents companies and leaders from creating proper processes to find a successor well in time? Why don't organisations develop clear strategies to identify, groom and train successors from within the company?The answer is that there are plenty of companies that do have processes to identify and train successors — GE and Unilever are two global companies that have developed rigorous processes to groom successors from within. But in many cases, these processes still end up failing. The Unilever system for example worked for many years and then started sputtering when the business environment changed. Similarly, in GE, despite Jeff Immelt's obvious achievements in the past decade, there are many who think that he is not doing anywhere as well as his predecessor Jack Welch. There are several reasons for that. First, the internal succession candidates often are in the same mould as the outgoing leader. More importantly, these people have worked too deeply within the organisation to be able to questions systems and processes — something that every leader needs to do after taking over. Equally importantly, there might be better candidates outside and by restricting the search to internal candidates; the search committee might be doing the organisation a disservice. Also, there are very few companies that span a broad array of industries and geographies (GE is one of the very few and the Tata conglomerate in India is another) — which means few internal candidates ever have the full training that the next generation of leader inevitably needs.Meanwhile, there are also dangers in parachuting people from outside to take over as a successor to the outgoing chief. For one, a regular practice of choosing people from outside the company reduces the incentive for the best brains in the company to stick around for the long term. Equally, no matter how well the outside candidate is researched and vetted, whether he or she will work out is always a matter of hit and miss. Lou Gerstner worked out beautifully, but Carly Fiorina did not.In family owned and run companies, where scions are expected to take over the next generation, other problems crop up. For one, there would be different people with different visions and capabilities in the next generation. So should the patriarch hand over the bulk of the business to the eldest son or daughter - or divide it equally between his sons and daughters? Or should he give the running of the business to the most talented person in the next generation even if that causes some heartburn?It would seem that it is a no-win situation as far as succession planning goes. But this need not always be the case. Sure, there will always be an element of risk while searching for a successor. And sure, it will always cause some degree of heartburn. There are a few things that all leaders and their search committees should follow. These are:Start early enough. Ideally the leadership search should start seven years before retirement and the most promising candidates identified and in place at least five years before the actual takeover. Make sure that both internal and external candidates are considered. There should be a process in place to identify bright young performers within the company and then groom them to handle the widest possible spectrum of jobs, and monitor their progress over the years. Have repeated meetings to figure out what the company would need for the next four or five years after the leader retires. Is the next successor's job going to be about consolidating businesses that were entered into by his predecessor? Identifying and getting into new business areas? Restructuring the business altogether? Expanding into new markets? Each of these tasks requires different skills and often different leadership qualities. Having a clear idea about what the task will be before the successor will help in choosing the right one. * And finally, after a successor has been put in place, give him enough rope to learn and do things his own way. Quite often, a successor is judged on his performance from day one, which is unfair. He should be given at least a couple of years before people start worrying about whether he is doing the right thing or the wrong ones.There are plenty of cases where successors have proved as good, if not better, than their predecessors. In the US, Jack Welch comes to mind. He succeeded the legendary Reginald Jones but carved out his own path. In India, TCS has had great success with successors - first Ramadorai proved a worthy follower to the great F.C. Kohli. And then, Chandrasekharan is taking TCS to a new trajectory after taking over from Ramadorai. In ITC, Deveshwar had gone far beyond his illustrious predecessors, and in ICICI, K V Kamath lived up and exceeded every expectation and has now handed over the baton to Chanda Kochhar, who is also doing rather well.The author is the editor of Businessworld
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The International Monetary Fund warned on Tuesday that Europe's debt crisis could have a major global impact if not tackled quickly and it urged euro zone leaders to beef up the region's rescue fund and recapitalise its banks.Two days before leaders of the 17-nation bloc are due to gather in Brussels for emergency talks in a bid to draw a line under Greece's spiralling debt crisis, the IMF urged them to take quick action to overhaul the European Financial Stability Facility (EFSF) set up to bail out debt-burdened economies."It would be very costly not just for the euro zone but for the global economy to delay tackling the sovereign crisis," Luc Everaert, Division Chief for Euro Area Policies in the IMF's European Department, told a conference call.The Fund recommended the EFSF, which has an effective lending capacity of 440 billion euros, be increased in size and be allowed to purchase sovereign debt on the secondary bond market, permitting it to participate in a possible debt buyback currently under discussion.European officials are considering three options for private sector involvement in a second Greek bailout, including the repurchase of sovereign debt on the market, a tax on the financial sector, or the rollover of bonds.While the IMF said private sector participation in euro zone bailouts was essential, Fund officials declined to say which if any of these options was preferable.With interlinkages in the financial sector providing the main threat of contagion, the Fund called for the EFSF to be reformed to act as a backstop for weak European banks, an option which euro zone leaders have so far resisted.Need More Europe, Not LessIn a "spillover" report on the effects of euro zone policies on other major economies, the IMF said recapitalising banks was key to prevent the crisis spreading from peripheral countries to the core of the region, France and Germany, and beyond.The impact from euro area banks would be strongest in Britain, Hungary, Russia and Turkey followed by Brazil and the United States, it warned.Banks throughout the euro zone immediately required more and higher quality capital. The Fund urged capital raising and restructuring of weak institutions, and urged reforms to make cross-border mergers and acquisitions easier.Shunned by markets and battling with deposit withdrawals, banks in Greece, Portugal and Ireland survive only because of emergency liquidity from the European Central Bank, it said."European banks need to be strengthened throughout the euro-zone area with a very strong follow-up to the stress tests that just came out and with a preference for private sector solutions," Everaert said.The European Banking Authority said on Friday that eight banks failed its tests, with a total capital shortfall of just 2.5 billion euros. But the test of 90 big lenders was widely criticised for being too lenient and turned up the market heat on many banks which scraped through.The Fund said the crisis had shown the need for the euro zone to press ahead with reforms to create an effective single market and to adopt tougher controls on member state's deficits."We need more Europe not less," Everaert said. "It's not necessary to go to full fiscal federalism, just need a mechanism which can override some national decisions to ensure fiscal discipline."While the euro zone's economic recovery appeared resilient thanks to growth in core, northern European economies, the Fund noted that the downside risks from the debt crisis were very important. It confirmed its growth forecasts of 2.0 percent for this year and 1.7 percent for 2012.(Reuters)
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Inflation is expected to remain sticky and high between August and December, Finance Minister Pranab Mukherjee said in a statement, seen by Reuters, on Wednesday.Annual inflation had quickened in June to 9.44 per cent, driven by higher prices of manufactured goods and fuel, adding pressure on the central bank to raise rates this month despite signs of slowing growth in Asia's third largest economy.Mukherjee said the headline inflation is expected to ease after December and could slow down to 6-7 percent by March 2012.(Reuters)
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Under attack for his proposal to raise an armed force, Baba Ramdev today said he was not trying to train terrorists or Maoists but only wants to set up a "nationalist" force."I am not making terrorists, Naxalites and Maoists. I am only developing a nationalist force. It is for self-defence," Ramdev, who is continuing his fast against corruption, told his followers at Patanjali Yogapeeth here.He was reacting to a volley of criticism on his plans to raise a 11,000-strong force to deal with police and anti-social elements attempting to disrupt his anti-corruption campaign."If our women are able to safeguard themselves then nobody will dare to harm them and if our men are able then they can defend any Ramlila ground-type attack," he said."My words should be taken in the right context. People should understand what I have said.I want to train them for self-defence.(PTI)
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US Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday.The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.But any form of default could destabilize the global economy and sour already tense relations with big US creditors such as China, government officials and investors warn.Li Daokui, an adviser to the People's Bank of China, said a default could undermine the US dollar, and Beijing needed to dissuade Washington from pursuing this course of action."I think there is a risk that the US debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, US data shows, so its concerns carry considerable weight in Washington.The US Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The US Treasury Department has said it will run out of borrowing room by Aug. 2.If the United States cannot make interest payments on its debt, the Obama administration has warned of "catastrophic" consequences that could push the still-fragile economy back into recession."It has dire implications for the economy at a time when the macro data is softening," said Ben Westmore, a commodities economist at National Australia Bank."It's just a horrible idea," he said.'Wouldn't Happen'The Republicans' theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.But interviews with government officials and investors show they consider a default such a grim -- and remote -- possibility that it was nearly impossible to imagine."How can the US be allowed to default?" said an official at India's central bank. "We don't think this is a possibility because this could then create huge panic globally."Indian officials say they have little choice but to buy US Treasury debt because it is still among the world's safest and most liquid investments. It held $39.8 billion in US Treasuries as of March, US data shows.The officials declined to be identified because they are not authorised to speak to the media."It just wouldn't happen," said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. "They would pay their Treasury bills first instead of other bills. It's as simple as that."Marc Ostwald, a strategist with Monument Securities in London, called the default scenario "frightening" and said bondholders' patience would wear thin if lawmakers persisted in pitching this strategy in the coming weeks."This isn't a debate, this is like a Mexican standoff and that is where the problem lies," he said.Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a government think tank, smelled some political wrangling behind the US debt debate as the 2012 presidential election draws nearer and said Republicans "want to make things difficult for Obama."But with time running short before the US Treasury exhausts its borrowing room, Yuan said default was a real risk."The possibility is quite high to see a default of the US debt, which would harm many countries in the world, and China in particular," he said.(Reuters)
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The Reserve Bank of India (RBI) is expected to raise its key policy rate by a further 25 basis points next week after inflation quickened in June and may hike once more by the end of the year, before pausing its long tightening campaign, a new Reuters poll shows.Expectations that the repo rate will peak at 8 percent by end-2011 are largely unchanged from a previous forecast in mid-June, and hinge largely on whether persistently strong price pressures in Asia's third-largest economy will soon begin to abate.India's wholesale price inflation quickened in June to an annual 9.44 per cent from 9.06 per cent in May, driven by higher prices for manufactured goods and fuel, even as the economy showed signs of cooling.Of the 23 analysts polled, 11 respondents expect the repo rate to rise by a total of 50 basis points (bps) by the end of the year, peaking at 8 percent.Nine of the respondents expect the Reserve Bank of India to pause its rate hike cycle after raising the repo rate to 7.75 percent in July. Only 4 expected the RBI to take a break in September and raise rates again by December."We should start seeing signs of inflation stabilising in the next 2-3 months because there will be a lagged impact of the global commodity price correction," said Sonal Verma, a Mumbai-based economist at Nomura who expected the RBI to pause after a 25 bps rise next week."And of course the slowdown we are seeing in India will also have some positive impact," she said.The RBI projects inflation will moderate to 6 per cent by end-March 2012. It said in May that it expected inflation to cool down after September, adding to analysts' expectations that the policy tightening cycle will end this year.The RBI has raised rates 10 times since March 2010 as it battles stubborn price pressures, including a quarter-point increase last month, ranking it among the most aggressive central banks in the world.Still, India's most widely watched inflation reading has remained elevated and well above the RBI's comfort zone of 4.0-4.5 percent since the beginning of the year, cementing the need for more monetary tightening despite signs of a slowdown in the economy.India's industrial output rose at its weakest pace in nine months in May, the latest sign that growth was cooling.While the most likely scenario is for the RBI to raise rates by another 50 bps before hitting the pause button, two analysts expected the RBI to raise rates by another 75 to 100 basis points by June."Local fundamentals - still elevated inflation amidst some signs of growth moderation - validates the case for further rate hike by the RBI," said Anubhuti Sahay, economist at Standard Chartered Bank."However, global uncertainties need to be watched out closely as a significant deterioration therein can force a reassessment of monetary policy response," she said.Another Reuters poll last week showed that analysts have scaled down their growth expectations and raised inflation forecasts for the Indian economy, compared with their outlook just 10 weeks ago.The median estimate of more than 20 economists for 2011/12 growth eased to 7.9 percent from 8.3 percent in the previous poll in May. Their inflation forecast is now at 8.5 percent for 2011/12 from 7.7 percent in the previous poll.Still, they expected rates to peak at 8 percent by end-2011, noting that more than a year of tightening was already crimping investment and consumption.(Reuters)
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