Key Takeaway
Around the middle of 2011, we were concerned that GDP growth print might
fall below 6% by this quarter. Without falling in the trap of being anchored by
the most recent GDP growth to forecast ahead, we now worry that on existing
trends in capacity creation, growth print could fall to even below 5%, if not 4%,
in one of the quarters in the coming year. And an ever lower growth will still
not solve inflation. The central bank, and the industry, must recognize after
the latest GDP numbers that interest rate cuts are needed even if inflation is
to stay high, as India’s inflation is increasingly borne out of low growth (that
is a result of low supply creation) and even lower revival hopes (through the
impact on balance payment).