Black Friday for Indian economy

Lok Sabha to convene on July 21, trust vote on July 22. Friday highlighted growing pressures on the economy after fresh data showed that industrial growth fell to a disappointing low in May and wholesale prices inched higher, leading the finance ministry to warn that double-digit inflation was here to stay till the end of the year. The double whammy saw the Bombay Stock Exchange's benchmark Sensex fall 3 per cent or 456.39 to close at 13,469.85 even as global rating agency Standard and Poor's suggested it might lower India's sovereign rating of BBB- (investment-grade status) due to the country's deteriorating credit profile over the last 12 months. Despite evidence of slower industrial growth, owing to rising interest rates and slower consumer demand, a further monetary tightening is widely anticipated to arrest inflationary expectations. The Reserve Bank of India (RBI) has raised the repo rate, or the rate at which it lends funds to banks, twice by 25 and 50 basis points to 8.5 per cent in this financial year. The cash reserve ratio, or the proportion of deposits banks must keep with the RBI, has been raised 125 basis points to 8.75 per cent. The Index of Industrial Production (IIP) growth for May slowed to a six-year low of 3.8 per cent against 10.6 per cent in the same month last year. The April numbers were also revised to 6.2 per cent from the earlier 7 per cent estimate. – www.business-standard.com