Further interest rate hike of 100 bps to hurt growth: CLSA

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Govt steps likely to bring down inflation: Finance Minister RBI likely to be hawkish, inflation may be sticky: Experts

Rising inflation and crude oil prices are two critical issues the Indian economy is dealing with at this point of time.

Experts feel that the RBI will stick to its stance of hiking interest rates in a bid to keep inflationary pressure under control. Agreeing with them, Rajeev Malik, senior economist at CLSA, in an interview on CNBC-TV18, said that fuel price adjustments will keep inflation high and a further 100 basis points of interest rate hike by the RBI will hurt growth.

He feels that the secret of dealing with inflation on sustained basis lies with the government and not so much with the RBI because it is not necessary that strong growth and inflation have to be inversely correlated, epecially in the case of India, where there is so much of unfinished agenda as far as reforms are concerned.

Talking about the recent drift in the IIP numbers, Malik said, "If you look at sequential seasonal adjusted data, consumer durables in India have had the best four months in a very long time."

"I think there is a lot of scope that is being built into just the headline IIP numbers, which tend to exaggerate the pace of the moderation. In fact, non-manufacturing components of IIP are expected to do much better," he said.

He also spoke extensively about the GDP growth rate. He said, "GDP growth in FY12 is will be about 8% to 8.3%. One fact is overlooked that services are a much bigger share of GDP as far as India is concerned and the services side is going to offer a cushion in terms of the slowdown from the IIP side."

He feels that it is important that investment in India stays upturn on a sustainable basis at this stage and without which there is no India story to talk about. "We see clear upside risk as far as FY12's fiscal deficit projection is concerned," he concluded.

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