RBI’s 6% growth vision crystal clear

RBI’s 6% growth vision crystal clear
The Economic Times, August 28, 2009, Page 11

Our Bureau MUMBAI

THE Reserve Bank of India (RBI) has held on to its 6% growth target despite a weak monsoon on the grounds that the economic impact of the drought would not be as bad as expected. However, the poor rains would push up food prices in the short term and add to inflationary pressures.

RBI has stuck to its GDP target even after at least a dozen research reports by banks and broking houses scaled down forecasts for the fiscal based on the rain failure in large parts of India.

“One needs to recognise the progress on effective diversification of Indian agriculture towards horticulture, livestock and fisheries and their rising share in total output of the agricultural sector,” RBI said in its annual report, which was released on Thursday. The central bank added that cereals, pulses and oilseeds grown during the kharif season account for only 20% of total farm output.

“Since the presentation of the policy statement, while the extent of rainfall deficiency associated with southwest monsoon has increased, the IIP figures for June show 2009 show a significant recovery in industrial output,” the central bank said in its annual report. The RBI has also said that the index of industrial production has also showed an improvement.

In another positive, RBI also expects capital flows to India to increase due to better medium-term growth and faster recovery prospects even as capital flows to overall emerging markets declined during the year. “Early indications for the first quarter of 2009-10 suggest that NRI deposits, FII portfolio inflows and inward FDI flows have generally been strong, as against the net capital outflows witnessed in the last two quarters of 2008-09,” the central bank said.

Though optimistic on growth, RBI has warned that price pressures are already being felt with the wholesale price index moving up by 4 percentage points over the March’09 levels. Although inflation as measured by the year-on-year movement of the wholesale price index is still negative, RBI said that is a statistical phenomenon with the base effect running out in October’09. The central bank also appears to be concerned over the high level of consumer price inflation for agriculture workers, which is around 13%.

GROWTH REMEDY

RBI's prescription for the economy
Reduce non-plan expenditure More liberal FDI policies to bring in technology and productivity Introduce govt-funded scheme for potential entrepreneurs Link petroleum product prices to international prices Augment grain procurement for food security CPI (Urban) to be used for measuring inflation Link no. of schemes an MF can float to the net owned funds Bank-led mobile banking more appropriate for India