The OECD on Wednesday pegged India’s growth at 8.5 per cent for the current fiscal, indicating that economic expansion would be slower.

The Organisation for Economic Cooperation and Development has projected the Indian economy to expand 8.5 per cent in 2011-12, much lower than the growth of 9.6 per cent witnessed in 2010-11 financial year.

Recently, Finance Minister Pranab Mukherjee had said the Indian economy is expected to grow 8 per cent in 2011-12, which is lower than budgetary estimate of 9 per cent growth.

The Reserve Bank of India has pegged the GDP growth at 8 per cent, citing high oil prices among other things as the reason for this moderation.

The OECD said in 2012-13, the economy is projected to expand 8.6 per cent.

The OECD, a grouping of 34 developed and developing nations, noted that India’s growth slowed to a more sustainable pace towards the end of 2010, after strong post-crisis rebound driven by a surge in private investment.

“Going forward, growth will pick up somewhat, underpinned by buoyant corporate sentiment and demand for infrastructure spending,” the think-tank said.

Pointing out that inflationary pressures have become more generalised due to rising non-food prices, the OECD said that liberalisation of FDI in retail sector would help in easing pressures of food inflation.

“... Liberalisation of foreign direct investment in the retail sector would promote competition and help modernise supply chains, thereby reducing food inflation pressures,” it added.

Food inflation, which was in double digits for most of 2010, stood at 7.47 per cent for the week ended May 7.

Meanwhile, headline inflation has been above 8 per cent since January last year and touched 8.66 per cent in April 2011.

The government is likely to take a decision soon on FDI in multi-brand retail. Presently, FDI is allowed only in single brand retail, which is capped at 51 per cent.

“The recent increase in world oil prices has been passed through into domestic petroleum product prices only to a limited extent and higher energy subsidy outlays are likely in 2011,” the OECD said.

Revenue Secretary Sunil Mitra said on Tuesday that “inflation can affect domestic demand and thereby adversely affect GDP growth... and consequently our tax collection”.

“A renewed commitment to reducing subsidies is needed to lower the burden on public finances. Efforts to better target subsidies on the needy ought to be stepped up,” the OECD added.

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