Reuters | Sep 11, 2010 | 3:04pm IST
The Reserve Bank of India (RBI) will take ‘appropriate measures’ to tackle inflation, the finance minister said on Saturday, though he added that India could not go on a "reverse growth path". Pranab Mukherjee was speaking a day after data showed industrial output accelerated much faster than expected in July, strengthening the case for further monetary tightening by the central bank to tame near double-digit inflation. Recent signs of cooling growth in Asia’s third-largest economy, along with a sluggish global economic recovery, had tempered expectations for a rate increase at the central bank’s policy review on Sept. 16.
But economists said the surprisingly strong industrial performance boosted the chances of a rate rise next week. "Inflation is a concern. I am concerned that prices are increasing," Mukherjee said in Kolkata. "RBI will take appropriate measures as and when needed. But at the same time, I cannot go on a reverse growth path." Pranab Mukherjee said India would likely grow between 8.5-8.75 percent in the fiscal year ending next March, therefore possibly exceeding earlier growth estimates of 8.5 percent. Industrial output rose 13.8 percent in July from a year earlier, nearly double analysts’ forecasts for a 7.7 percent rise. It was the fastest growth since April.
Mukherjee on Friday called it "extremely encouraging", adding that a 63 percent rise in capital goods production signalled "long run optimism" in Indian industry, according to a statement. Policymakers and investors will be watching inflation data next week for cues on the central bank’s next policy move. August’s headline inflation due on Tuesday is forecast to have eased to 9.6 percent, which would be its second-consecutive month below double digits. Yet with food inflation accelerating for three straight weeks and signs of manufacturing capacity constraints, policymakers fear high food prices could spill over into the broader economy.