India’s economy was likely to witness a mild recovery during this financial year, despite several financial and external pressures that were strongly influencing the policy environment, said Subir Gokarn, deputy governor of the Reserve Bank of India.
“Our outlook for 2012-13 is for a mild recovery in growth. Our projection in the April policy indicated that the GDP (gross domestic product) growth would be at 7.5 per cent. We do expect some bottoming out of this process over the course of the year,” said Gokarn, who was here to attend an event organised by the Confederation of Indian Industry Southern Council.
The monetary policy had to be sensitive enough to other risks and pressures, if “we are to remain focused on containing inflation”, he said. Global conditions are likely to be challenging for some time to come, and oil prices and capital flow demand greater attention.
Gokarn said the domestic growth-inflation balance was stabilising even as risks remained on both fronts.
“As we said in April, the interest rate cycle has turned and the progress of the cycle will depend on the overall assessment of growth. There are other factors and indicators, as well. So, we will take a consolidated and holistic view of all of this at our next policy review meeting on June 18-19 and quarterly review in July,” he said.
The 3.5 per cent contraction in the Index of Industrial Production (IIP) data for March indicated that there was a sort of slowdown, he said.
“We have been raising concern about the IIP data for some time though as a single indicator of growth activity, it is perhaps a little inadequate at this time. So, we take a number of other variables into account, such as the PMI (purchasing managers index), our own surveys and corporate analysis, which suggest that there is a sort of slowdown,” Gokarn said.
According to the government data released earlier in the day, industrial output shrunk 3.5 per cent in March due to poor show of manufacturing and mining sectors, dampening hopes of an early revival of growth.
Data by the Central Statistics Office also showed the average industrial output growth for 2011-12 fell to 2.8 per cent from 8.2 per cent in 2010-11.
On RBI’s intervention in arresting the rupee slide, Gokarn said the apex bank would continue to use instruments within its ambit to curb volatility in the foreign exchange market.
“It is (the rupee slide) motivated by the pressures we see in the market based on calculations about cost and benefits that any intervention that we do does have positive and negative impact. We want to try and make sure in pursuit of one set of objectives, we are not undermining other speculation. So, it is a very delicate balancing act and our … and choice of instruments is based on these concerns.”