Rate rises and graft scandals threaten India growth

NEW DELHI, February 13, 2011 (AFP) – India is set for scorching growth this year but concern is mounting about its longer-term outlook, with the central bank seen hiking interest rates further and corruption scandals worrying investors. The stock market has already dropped some 17 percent this year, hit by fears that economic growth will cool due to higher interest rates and souring foreign investor sentiment amid a spate of high-profile corruption scandals.

In January, foreign institutional investors turned net sellers for the first time in eight months, dumping some $1.4 billion in Indian stocks, according to industry data.

“Corruption and ensuing political risk has without question become a major concern” with foreign investors, Mumbai brokerage Espirito Santo Securities said in a commentary.

The government says it is confident India’s economy will expand by 8.6 percent in the fiscal year ending in March, eclipsing the previous year’s 8.0 percent growth.

But growth may slacken to 7.7 percent next year as resurgent oil prices and further rate rises to tame inflation “take their toll”, Credit Suisse economist Robert Prior-Wandesforde cautioned.

Goldman Sachs economist Tushar Poddar said he was holding t