By: Dr. Mike Campbell

India is the world’s most populace democracy and is an emerging, globally important economy. With a population of approximately 1.2 billion people, India represents an enormous potential market for the rest of the world which is likely to open up further as the nation becomes wealthier. India is already the third largest economy in Asia behind China and Japan.

The current level of inflation in India stands at 9.06%, as of May 2011. Given that many Indians have yet to feel any real benefit from the nation’s rising international importance in economic terms and that poverty is a real issue, rising prices presents as much a civil risk as an economic one.

How Have Things Been Going?

The Reserve Bank of India has acted to try to curb inflation by raising interest rates for the tenth time since March 2010. The interest rate was hiked by a further 0.25% to stand at 7.5%. The idea is that by making credit more expensive, demand (and hence price rises) will be subdued. This means that economic expansion is also likely to be slowed as business finds that the cost of expansion has risen. It is anticipated that the rise will attenuate Indian growth to “just” 7.4% this year, a phenomenal level when compared to any of the mature, developed economies. However, it is accepted by financial analysts that inflation must be brought under control even at the expense, somewhat, of economic growth. This is particularly important for the nation’s poorer citizens who see little benefit in their lives from economic growth, but feel the impact of rising prices very keenly.

Over the past 12 months, the Euro has appreciated by 12.2 % against the Indian Rupee. It currently stands at 63.9710 to the Euro.