Inflation Increase May Mean More Fears Ahead

Although, India can today boast of its bullish economy which is growing more than 8.5% annually since 2003 but has brought with it a significant drop in number of consumers who are unable to carry the burden of rising prices anymore.

The situation has become worst with interest rates on loans hitting the sky, which has made it a Hercules task for borrowers to repay loans, which have been rising at a faster rate than incomes have risen.

While property rates in India and real estate stock prices continue increasing at such a pace, its enormous impact on overseas investments cannot be ignored. However, both the government and Reserve Bank of India (RBI) are trying hard to cut the inflation.

In a step to cool the growth, RBI raised interest rates a number of times over the past year thereby persuading banks and housing finance companies to increase lending rates, in turn causing consumers with adjustable rate loans.

The consumers find themselves in a situation to break their bank in order to pay their monthly mortgage payment which has witnessed a jump of over 20% to $41,000.

However, the weaker section of society will be the worst sufferers if inflation persists as the costs of basic commodities like vegetables and cooking oil have already gone high in the past three years.

The inflation rate (As far as wholesale prices are concerned), has reached the mark of 6.73% in February and has been above 6%. Contrary to this, retailing in India has risen as much as 10% from what it has been a year ago.

Adding to woes of RBI is the ever increasing inflow of foreign direct investments (FDI) and remittances in India which has left banks flushed with funds.

Loans have marked an increase of 30% annually. Interestingly, banks are showing more exposure towards the commercial real estate. For that reason, the central bank is releasing more stringent guidelines for the banks to cut their interests towards the commercial segment. Some major players in banking sector have already begun focusing what could potentially turn into risky assets.