Even as the governmnet mulls a hike a in diesel prices to tame inflation, the Economic and Social Survey of Asia and the Pacific (ESCAP) brought out by the UN has made gloomy forecasts for India's growth in the current fiscal year. It has blamed rising oil prices for the rising inflationary pressure on the country's economy.

“The impact of high oil prices would also be evident in other macroeconomic indicators, particularly for headline inflation and the current account balance,” said the report released on Thursday.

It added, “The upward trend in oil prices could further worsen the external balance of India.” The brokerage and investment group CLSA had said last month that $10 a barrel rise in crude oil prices has the potential to shave 0.3-0.5 percentage points off India’s growth. It will have severe effect on people living in rural India, it had contended.

The UN report highlighted how high food prices could spike India's growth rate which has been steadily maintaing a 8 plus record in the last two years.

The government accepts the pressure of inflation on India’s growth. Releasing the Asia and the pacific report, chief economic adviser Kaushik Basu said, “General inflation remains at unacceptably high levels.”

However, Basu remains optimistic saying it is beginning to ease and expected an April inflation reading below nine percent. He also called for generating innovative ideas from the Asian economy to find solution for the high inflationary trend. The Reserve Bank of India on Tuesday raised key rates by a sharper-than-expected 50 basis points to tame inflation.

The Indian economy is projected to grow at 8.7 percent in 2011, according to  the report. “It is in tune with government’s projection, which had forecast in February that its annual economic growth will be in the range of 8.75 percent to 9.25 percent for the 2011/12 fiscal year that began in April,” Basu told the reporters. He admitted that the growth rate could be revised downward by the end of this month.

The study also mentioned that high inflationary trend has the potential to slow down poverty-reduction in Asia and the Pacific, where the economy is dynamic. “If staple food prices rise at half the rate of 2010 and oil prices are at an average of $105 per barrel, an additional 9.8 million people would be adversely affected, including 8.3 million kept from rising above the poverty line and 1.5 million pushed into poverty,” the study noted.

ESCAP estimates show that rising food and oil prices could lead to 42 million additional people in poverty, joining the 19 million already affected in 2010. The report commented that the high inflationary trend could delay the achieving of the millennium development goals (MDGs) by upto five years.

The Asia and the Pacific region is expected to grow at 7.3 percent against last year’s 8.8 percent.

The study stressed the need to protect poor and vulnerable households through strengthening of public food distribution systems, food vouchers, school feeding programmes and other targeted subsidies.