India will grow 8%-plus as soon as global economy is back on track: Rakesh Mohan

India will grow 8%-plus as soon as global economy is back on track: Rakesh Mohan
The Financial Express, March 31, 2009, Page 4

Voicing his view on the growth of the economy, Reserve Bank of India deputy governor Rakesh Mohan said that while there will be some moderation in growth in the immediate future due to uncertain global market conditions, it is felt that India will return to its trend of 8% plus growth rate as and when global economy returns to normalcy. “This will however depend upon certain critical areas such as agriculture, infrastructure and fiscal consolidation being addressed,” he said.

Addressing the media in Mumbai on Monday while unveiling the report India’s financial sector assessment prepared by the central bank’s committee on financial sector assessment, he said, “Despite the widening trade deficit, the current account deficit has remained modest, largely due to high levels of private transfers and service sector exports. The low debt-to-equity ratio in the Indian corporate sector points to higher internal accrual and buoyancy in their revenues and profitability. Recent times have, however, seen a sharp correction in the valuations of listed firms as also in their profitability, as has happened globally. To that extent, there could be some reversal in the declining debt-to-equity ratio in the Indian corporate sector in the current context.

The global financial turmoil has led to a significant slowdown in net capital inflows in 2008-09 with net portfolio outflows, it is expected that overall India will still record net capital inflows, though modest, this year. Also, the Reserve Bank’s armoury of policy instruments for maintaining liquidity has, however, been effective in managing the current situation. Overall, during 2008-09, the rupee was volatile and the volatility was greatly accentuated from mid-September 2008 onwards. The Reserve Bank and the government have been active in taking a range of measures to meet shortfalls in rupee as also foreign exchange liquidity. It may be noted that among the countries surveyed by the Bank for International Settlements, the Indian foreign exchange market volumes have shown the fastest growth during 2004 to 2007. The foreign exchange market in India has continued to function well even during this time of turmoil.”

However, he added, “Given India’s high exposure to oil imports, coupled with the widespread impact in times of higher oil prices on the economy, a more efficient use of oil products is warranted. Another major concern, both domestically and globally, has been the rise in food prices. However, the recent correction in global prices, along with the series of measures already taken by the government on the supply side, has begun yielding results. There is a need to improve both the forward and backward linkages in agriculture through better credit delivery, investment in irrigation and rural infrastructure, improved cropping patterns and farming techniques, and development of the food processing industry and cold storage chains across the entire distribution system.”

“Going forward, it is essential to continue with focused attention on achieving a balance between financial development and financial stability. Also, for the growth momentum to be sustained, it is necessary to return to the path of fiscal prudence at both the central and state government levels. The key to maintaining high growth with reasonable price stability lies in rapid capacity additions through investments, productivity improvements, removal of infrastructure bottlenecks and amelioration of skill shortages,” he said.