There is no longer the sense of subdued optimism that permeated the UPA Government till recently that inflation, stuck in double digits since June and crossing the 12 per cent mark at the end of July, would begin to moderate in October-November coinciding with the arrival of kharif crops in the market. What India is now undergoing is a broad-based spiraling of prices affecting primary products, manufactured articles, even more, and the fuel group including petrol and diesel.

Certainly, the oil and commodity price surge in the international market triggered global inflation at the start of 2008 with gradual effects emerging and developing countries, especially the world food crisis at the forefront, but this cannot be the sole reason for the current intolerable levels of India's inflation, as our economic policymakers had us believe earlier. The six-month long battle against inflation through fiscal and monetary measures and administrative regulations has failed to tame the continuing uptrend. Edible oils iron and steel and petroleum products account for a significant element in the price surge.

It was needed to ensure that monetary policy becomes effective in containing inflation expectations. Predictably banks have been revising lending rates and hardening the interest structure, to the dismay of industry which would have preferred a pause in RBI's monetary tightening. The rate hikes would certainly impact on raising capital, investment, expansion and corporate profits. Home and retail sector borrowers feel the pinch the most. These are sectors where some banks have over-extended themselves at the risk of increasing the level of non-performing assets. The monetary policy direction is also for limiting credit growth which, contrary to expectations, has not declined while there is some deceleration in aggregate growth in deposits.

India’s sovereign ratings outlook may no longer remain positive judging by the recent assessments of the context of the current state of economy. Government feels emboldened after the Left’s withdrawal of support to go ahead with key economic reforms in banking, insurance and pension sectors and reopening disinvestments, especially as the exchequer gets drained from the huge post-budget commitments like farm loan waivers, pay hikes for government employees and rising subsidies.

The sharp decline is attributed to the firming of the US dollar and the perceptible demand slow-down in US. Although demand will remain high in emerging market: like China and India. Even at US dollars a barrel, oil prices are more than double its level in 2006. Meanwhile, China, which is also wrestling with its excessive inflation, reported a 10 per cent rise in producer prices, the highest in 12 years. Its consumer price has ranged from 7 to 8 per cent which is regarded as too high and evoked a series of monetary measures since the beginning of the year, China, has, however, managed to maintain its growth steady at 10.4 per cent in the first half of 2008.The world’s leading developed economies are set to slow more sharply in the months ahead, and a downtrend in India and Russia unlike China and Brazil.