The growth story of the Indian economy was driven by a strong performance from the service and construction sectors. However, the rate of expansion is slowing against increasing concerns of high inflation caused by rising food and fuel prices.

Just as positive global factors supported India's expansion earlier, negative global factors, such as surging commodity prices and growing investor risk aversion, are now threatening to pull its growth below potential.

The Indian economy is plummeting with weakening export markets, higher inflation and shortage of talented workforce. Besides, the industrial growth has fallen to a disappointing low as wholesale prices inch higher. The double-digit inflation has been causing sleepless nights to the Finance Ministry. Standard and Poor's, the global rating agency, confirmed the economic downfall and warned that it might lower India's sovereign rating of BBB- (investment-grade status) due to the country's deteriorating credit profile over the last 12 months. According to the Economist Intelligence Unit, economic growth will slow to 7.7% in the current fiscal from 9% in the previous year, and the growth will be driven primarily by domestic demand and consumption. Amid global financial turmoil, a slowdown looms over India's economy. Even sustaining, the present growth level is a great achievement, especially when the world economy is going through an extremely difficult phase. Planning Commission Deputy Chairman Montek Singh Ahluwalia predicted that fiscal 2008-09, by all accounts, was a bad year for the world economy and India's growth rate would be impacted adversely.

Asian countries are facing the inflation spiral, which was brought on by multiple upward pressures on prices compounded by supply constraints. In fact, the social and economic implications of the inflation threat overshadowed even the concerns of a global slowdown sparked by the subprime crisis. The Asian Development Bank (ADB) in its new report suggests, "For a number of years, this region has been growing economically at breakneck speed and now it is coming up against speed limits." The skyrocketing food and fuel prices are strong factors behind the surge in inflation; structural factors are also being at work. The report also cites the other reasons behind the economic slowdown of the region, which include infrastructure bottlenecks and skill shortages arising from rapid growth that are forcing up prices and wages. At the same time, in some countries, money supply is expanding beyond central bank targets because of burgeoning current account surpluses and the accumulation of foreign reserves.

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