India's real GDP grew at 7.4% pa for the fiscal year to March 31, 2010, slightly lower than our forecast of 7.6%. We think this performance is very creditable, especially since the country faced the worst drought in 37 years due to failed monsoon rains. Only about 42% of the arable land in the country is irrigated; hence, the reliance by most farmers on monsoon rains. Poor rains hit farmers' incomes and have a multiplier effect on the economy. About 60% of India's 1.2 bn people live in rural areas. We forecast GDP growth of 8.5% for the year to March 2011 and resumption above 9% for the year to 2012.

Food inflation, which forms about 40% of the wholesale price inflation eased slightly to 16.12% in the year to 5 June from 16.74% in the previous week. Food price inflation has remained stubbornly high above 15% since November 2009. Last year's drought pushed up prices of food articles, some by 50%+. This has led to street protests, often supported by opposition parties, and has become a policy headache for the authorities. The Government has been forced to hold back on major reforms, eg, dismantling fuel price subsidies ahead of eight state elections due later in 2010 and 2011. High inflation has also prompted the RBI to reverse its easy monetary stance; it raised interest rates twice, by 0.25% each time, since mid-March. We expect another 0.25% hike (already discounted by financial markets) at the next quarterly monetary policy meeting in late July.

David Fuller's view Congratulations to Deepak Lalwani who was recently awarded an OBE.

Westerners need to see the economic data above because one could be forgiven for thinking that the entire world faces our European and North American problems of slow growth, sovereign debt concerns, deleveraging and deflationary pressures. In contrast, the biggest problem for many emerging (progressing) economies is inflation. India remains one of the world's most interesting growth stories but its economy is particularly susceptible to commodity price inflation.

This issue of The India Report contains a must-see table of stock market performance over 5-years, in USD.

The BRICs, not surprisingly, have done extremely well. Some readers may be surprised to see China's world-leading performance by the Shenzen Composite Index (shown here in renminbi) - I was because for A-Shares I usually look at the Shanghai Composite, which still registered a very respectable gain in Bloomberg's table, despite continuing underperformance since last July. Earlier strength obviously encouraged the PRC to float many more issues, temporarily swamping the market. This will not always be the case and have gradually increased my holding in the UK-listed, sterling-denominated iShares FTSE/Xinhua China tracker.

India's stock market performance (weekly & daily) remains steady, albeit range bound. I would not be surprised to see some further resistance near the higher side of this pattern over the near term, but would only lower my medium-term bullish expectations if it were to fall back and break the last reaction low at 16,000. I think India will be one of the upside leaders as global confidence in stock markets improves, probably in the second half of this year. However, if the S&P 500 Index were to break its low near 1040, I think this would drag global stock markets lower. My main personal investment in India is in the JP Morgan Indian Investment Trust (JII LN) (weekly & daily), which currently trades at a discount to NAV of 10.48%, according to Bloomberg.