RPT-WRAPUP 1-Demand surge in India adds to stimulus exit debate
* Oct car sales up 34 pct; truck, bus sales rise 52 pct
* PM adviser: high inflation could prompt early cbank action
* Fiscal stimulus may need to be withdrawn in 2010
* Surging capital inflows not a concern for now: fin secy
By Rajkumar Ray and C.J. Kuncheria
NEW DELHI, Nov 11 - India saw a 34 percent surge in car sales in October from a year earlier, a sign of strengthening consumer demand, and a top government economic adviser said stimulus measures may need to be withdrawn next year.
India is widely expected to be among the first of the large economies to pull back from extraordinary fiscal and monetary measures introduced to help weather the global downturn, as inflationary pressures and a surge in capital inflows have started worrying policy makers.
Demand in Asia's third largest economy has been rising faster than expected, supported by low interest rates and government spending, helping to drive sales of cars and other consumer goods. [ID:nDEL2193]
Consumer demand and supply shortages in food items after a weak monsoon have driven up inflation in recent weeks.
"If inflation pressures develop, monetary authorities may take measures earlier. RBI will wait and see how price situation develops in Nov-Dec," said C. Rangarajan, chairman of the prime minister's economic advisory council.
"Next year we might have to start the process of withdrawing some of the measures," he said, referring to fiscal stimulus.
He said excise duties, which were lowered twice between December and February, needed to be adjusted while the government's expenditure needed to be cut in 2010/11 to reduce the fiscal deficit by 1 to 1.5 percentage points.
India's fiscal deficit is forecast to be 6.8 percent of gross domestic product in 2009/10, higher than the 6.2 percent last year. India aims to cut its deficit to 5.5 percent of GDP in 2010/11.
The economy expanded by 6.7 percent in 2008/09, slowing from 9 percent or more in the previous three years.
INFLOWS NOT A CONCERN
Rangarajan, a former central bank governor, said the economy could grow 7-8 percent in 2010/11 , but Finance Secretary Ashok Chawla said on Wednesday the economy cannot return to the 8-9 percent growth trajectory until exports revive.
India's exports declined 11.4 percent in October from a year earlier, their 13th drop in a row, and India's trade secretary said they would start growing only from January. [ID:nDEL515162]
While the global slump continued to erode India's exports, the country has seen a surge in capital inflows as foreign investors buy Indian shares and invest in capacity expansion.
A central bank deputy governor said on Tuesday that India faces a dilemma of needing to contain rising inflation while trying to support growth and managing foreign capital inflows. [ID:nBOM338904]
But the finance secretary said the surge in capital inflows into the country was not a matter of concern for now, and authorities were not planning to put any curbs on such flows. [ID:nBMA006399]
About $14 billion in foreign funds have been pumped into Indian shares so this year. Last year, foreign investors were net sellers. (Additional reporting by Rajesh Kumar Singh and Matthias Williams; Editing by Tony Munroe and Victoria Main)