While politically, higher inflation is clearly suicidal for the government - finance minister P Chidambaram admits he can sacrifice some growth at the altar of inflation, India also runs the risk of a slowdown on further weakening of the growth momentum. The only silver lining for the government is a boost to exports because of an unexpectedly depreciating rupee. The rupee depreciated almost 7 per cent this year and stood at a 30-month low of 42.70 against a dollar on Thursday, raising prospects of exporting sectors such as IT, engineering etc.

The depreciating rupee, however, cuts across both sides. According to D K Joshi, principal economist, Crisil, “I think inflation would continue to move up in coming weeks as there is pressure of depreciating currency and high crude prices.” A weakening rupee is offsetting fiscal measures taken by the government, leading to import of inflation, he said.