EIU believes that this slowdown would owe far more to domestic factors-primarily the effect of tighter monetary policy to combat inflationary pressures-than to external ones.
Although the gloomy outlook for the US economy will have a negative impact on the Indian economy, that impact woudl be relatively restrained. India's level of trade dependency is still among the lowest in Asia, export markets in the rest of Asia would remain relatively strong and Indian banks' balance- sheets are in good shape, EIU's Director of Research, Manoj Vohra said.
He, however, warns that further downward revisions in the forecast are possible if either global growth is slower than expected or domestic inflation is not brought under control.
According to the EIU, inflationary risks remain on the upside-high oil and food prices, rising wages and a wider- than-expected fiscal deficit as a result of generous pre-election spending-could all stoke inflationary pressures.
The Central bank would be under pressure to raise interest rates in response to the sudden acceleration in wholesale price inflation over the past few weeks.
The better-than-expected GDP data for 2007-08 would also give the RBI more leeway to maintain a tight monetary stance, in spite of aggressive US monetary loosening, Vohra said.
EIU said that investment would continue to be the fastest-growing component of GDP, despite a slowdown in the rate of investment growth from 13.8 per cent in FY'08 to around 11.2 per cent (expected) in FY'10.
