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New Delhi: Terming rising prices a threat to social stability in India, a noted global rating agency feels the country's central bank may take further steps to tighten the money supply and bring inflation down.
"Given that the Indian economy still appears healthy, the Reserve Bank of India may consider further tightening to cool inflation, which is a threat to social stability," said the report by Moody's Economy.
The agency also noted in its assessment of India's foreign trade that the consumer sector was showing few signs of fatigue, with the services sector being the main engine for expansion in the March quarter.
According to Moody's, complaints by exporters about the negative impact of the rupee's appreciation did not hold ground but challenges did remain for India's external sector in the form of demand slowdown in rich nations.
"Export performance is showing absolutely no signs of slowdown, despite earlier complaints about the negative impact of a stronger currency," the rating agency said in a study on India's foreign trade.
Exports miss target
"Considering that the rupee has recently retreated, the prime competitiveness of India's exports will stop declining. The biggest risk to India's export outlook is now purely weakness in external demand," the rating agency added. "Softening consumption in developed nations such as the US will certainly hurt India's outbound shipments."
The study came against the backdrop of India's merchandise exports missing the target of $160 billion for the last fiscal by $5 billion, but still managing to log a growth of over 30 per cent in the first month of the current fiscal.
The study, by Sherman Chan, Moody's economist for India, Hong Kong, Singapore and Vietnam, said the emerging South Asian economic giant was expected to look increasingly at intra-regional opportunities to sustain its export revenues.
Looking at the other side of the trade ledger, Moody's said imports were also growing strong in India and that the country's tight monetary policy did not appear to have weighed on the demand for imports.
"As shown in the March quarter gross domestic product data, construction activity has remained strong in India and this will see demand for overseas resources stay firm in near term," the agency said.
The Indian economy expanded by 8.8 per cent in the quarter ended March 31 to log a 9 per cent growth for 2007-08, but industrial production rose just 3 per cent in February - a notable slowdown from the 8.6 per cent a month before.
The price rise has also become cause for worry with the annual rate of inflation shooting up to 8.1 per cent for the week ended May 17.
New Delhi (Reuters) India is likely to raise fuel prices today to ease pressure on bleeding oil firms, a top official said, after 10 days of political tussling over the proposal.
The government is weighing losses at state oil firms, which say they are running out of money to import crude oil, and the political fallout of the inflationary move for the ruling Congress Party, which lost a state election last month and faces more polls.
A top oil ministry official said the federal cabinet and a ministerial committee were scheduled to meet yesterday. "The matter will be considered there," said the official, who did not want to be identified.
Soaring crude costs have forced several Asian countries, the latest being Malaysia, to consider lowering fuel subsidies and raising prices, although China, which makes up nearly a third of Asia-Pacific oil demand, looks unlikely to raise prices before August.
Analysts say the government may raise prices of petrol and diesel by 5-10 per cent as the initial proposal for a 15-22 per cent hike was not politically acceptable.
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