The industrial production numbers have come higher than expected and India looks all set to see above 8 per cent growth yet again.

Saumitra Chaudhari, economic advisor to ICRA believes that the growth momentum continues to be strong, along with a tightening monetary policy. According to Chaudhari, manufacturing growth has been above expectations.

Mike Moran of Standard Chartered Bank believes that current account deficit is a big risk to India and oil prices also pose a big concern. Moran also believes that interest rates would eventually curb the high growth rates. CNBC-TV18 shares with domain-b its exclusive interview with Moran and Chaudhuri:

Industrial production numbers at 9.6 per cent do not look as good as last year's 12.2 per cent but are certainly better than expected. What of impact will the floods have on the current month's numbers? Chaudhuri: The manufacturing growth is above 11 per cent, which is critical. The mining figure may actually be revised upwards because if you look at the numbers for coal, it is more than 11 per cent. The point is that the manufacturing growth is above the trend for quite some time.

Our first quarter average is over 11 per cent and this is actually above trend growth and has its own connotations therefore. As far as the flood situation is concerned, one doesn't really know since the floods sometimes looks more damaging at the time of the floods than what eventually turns out to be. But sometimes it is the reverse. So unless we have harder information on what has been affected, I don't think I would give an answer on that.

We have seen industry growing above 10 per cent in double-digits now for quite sometime. Do you expect higher interest rates to start catching up at some point of time? Moran: I think that is the case inevitably. Across the whole spectrum of the Indian economy, we are seeing fairly good growth and we will see high levels of credit growth. The inflation picture is also deteriorating. I think we will see tighter interest rates especially towards the end of the curve. We are looking at RBI probably tightening by another 25-50 bps over the course of this year.

How do you expect them to go about… will there be consecutive hikes? What are your thoughts on the energy component because it largely seems to be absorbed by the refining companies at this point? Moran: It may not necessarily be consecutive. But I think the overall picture, and this is not just in India but also certainly across the whole of Asia, we still see a hawkish view from some of the central banks. Obviously, they have an eye not only on the internal picture, which still exhibits some signs of domestic inflation pressure coming through but also across the over priced picture, which is still volatile for the time being. Probably it will remain so in the second half of this year.

So the tightening story is much in place and energy components would definitely be a key issue that Central Bank would be looking at. But I think the important point is that even though we expect to see the tightening of the monetary policy, the growth momentum in India continues to remain strong and broad based as well.

We are a bit concerned but consumption does seem to be peaking and is likely to slow over the second half of this year. But that has been compensated by strong momentum in capital spending. So overall, the balance of growth remains good in India. Despite the fact that we have a negative impact of necessary short-term interest rates as well as oil prices, the economy still looks very robust.

Do you think that any concerns on an energy shock will perhaps be absorbed by the performance of other core sectors like capital goods, steel, etc? Chaudhuri: The energy sector is a bit intriguing because economic growth has actually continued to expand worldwide despite increasing petroleum prices. Petroleum prices have gone from $30 a barrel to $75 a barrel and that pass through on prices has been completed.

So it's a bit intriguing to note what is really pushing this and what is compensating for the fact that oil prices are going up. But to that extent, interest rates have gone up worldwide but growth continues to be quite strong. So it is quite possible that generally, not just in India but everywhere else, monetary policies will keep on getting tightened.

What people don't want to get is the big shock; all of it is a bit surprising. The growth in 2006 seems to have been slower than it was; but it isn't so. If one looks at the last six months' data, Europe has continued to grow. US has slowed down a bit in the second quarter but it doesn't seem to be slowing as much as you would have expected from the combination of higher interest rates and high oil prices.

How do you balance data like this on the industrial production numbers versus the current account deficit, which is the big concern for a lot of people watching this market? Moran: I think current account deficit is one risk to the overall picture in India. I think the big risk again is oil prices. In the beginning of the year, we saw offshore investors looking at the current account deficit in India as a clear negative compared to other parts of Asia like Korea, Japan, Singapore where current account surplus is very much a big buy signal. If we do see oil prices continuing to make headway on the topside by $80-90, then the focus will be back on India and the Indian rupee, going forward. But from our perspective, we do not expect oil prices to go much higher from here.

We are looking at a global picture where global growth is clearly slowing down led by the US and the industrialised economies. It should pull back the global demand for a lot of the commodity markets, in particular oil. From my perspective, we should see oil prices trend lower as we go into 2007 and also see that to take some pressure off the current account deficit numbers vis-à-vis what we have seen in India.

But overall, if one is just looking at trade, we are still seeing strong growth on the export side in India. If consumption does slow down, as we expect it to in India, that should curb import growth. So in our core case scenario, we think that the Indian current account deficit probably peaked. It is likely to consolidate over the course of the next 6-12 months on the back of oil prices.