Growth has moderated and, against the backdrop of a weakening global economy, is projected to remain relatively subdued and reliant on private consumption in the near term. Despite the cooling in activity, inflation remains persistently above the Reserve Bank of India’s comfort level. With inflation expectations also high, price pressures are likely to recede only gradually in response to easing demand and a stabilisation of commodity prices. An improvement in external conditions and some strengthening in business investment should lead to a pick-up in growth in the second half of 2012. The government needs to adhere to its strategy to further reduce the fiscal deficit to support monetary policy in achieving a sustained reduction in inflation.