RBI rings alarm bells, says India's economic growth may fall under 5.8%, caps rate cut talk

Jan 28 2013, 19:34 IST
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RBI rings alarm bells, says India's economic growth may fall under 5.8%	RBI rings alarm bells, says India's economic growth may fall under 5.8%
SummaryRBI says its hands are tied as far as easing monetary policy is concerned.

despite deficient rains, but is unlikely to fully compensate for kharif deficiency.

Sowing under rabi crop has been broadly the same as the level in the previous year.

RBI on reforms: Restore investor confidence, usher in transformation

The Reserve Bank of India today said recent reforms have reduced the immediate risks for the economy but emphasised on the need for more measures to restore investor confidence.

Flagging concerns about fiscal and external imbalances in the economy, the apex bank said that more reforms are required, especially in road and power sectors, to remove the investment bottlenecks.

"The fresh round of reforms that were initiated in September 2012, after a hiatus, has reduced the immediate risks facing the Indian economy...

"On the whole it appears that the reform measures taken so far have not decisively lifted business sentiments and further action may be needed to restore confidence," RBI said in its third quarter review of Macroeconomic and Monetary Development.

The monetary policy, RBI said, could focus more on boosting growth after the reform actions get executed.

"While government has embarked on a fiscal adjustment path, staying on this course over the medium-term is necessary for providing sufficient space for monetary policy to stimulate growth," RBI said.

In the past couple of months the government has taken a host of reforms initiative including opening the multi-brand retail chain to FDI, and also the Union Cabinet has approved hiking foreign investment limits in the insurance and pension sectors.

Earlier this month, the government also allowed partial deregulation of diesel prices, besides limiting the number of subsidised LPG cylinders to nine per family a year.

"Fiscal risks have somewhat moderated in 2012-13, but a sustained commitment to fiscal consolidation is needed to generate monetary space," RBI said.

The RBI has held interest rates steady for the last nine months since April policy review as it wanted the government to execute fiscal measures to improve investment climate.

"...There is a long road ahead to bring about a sustainable turnaround for the Indian economy," RBI said, adding that the economy could start turning around in 2013-14 as the impediments to investments are removed.

"However, weak global economic conditions, domestic business constraints and low confidence levels may keep the recovery modest next year, while the near-term risks to the economy emanating from fiscal and external imbalances remain," it said.

The RBI further said that the economic growth in the current fiscal is likely to fall below the earlier estimate

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