Sluggish external demand continues to inhibit improvement in services
The Reserve Bank of India (RBI) today lowered its growth projection for the Indian economy as new investment demand continues to remain muted.
The banking regulator now expects the domestic gross domestic product (GDP) growth at 5.5% in the current financial year.
It had earlier projected 6.5% growth in July, 2012. But lowered it to 5.8% three months later as investment demand slowed, consumption spending moderated and export performance eroded.
"Since then, industrial activity has remained subdued. Sluggish external demand continues to inhibit improvement in services. While the coverage of rabi sowing has picked up, severe winter in certain parts has endangered crop prospects. New investment demand, which should be the key driver of the upturn, continues to be weak. While the series of policy initiatives by the government has boosted market sentiment, it will take some time to reverse the investment slowdown and reinvigorate growth," RBI said in its third quarter review of monetary policy for 2012-13.
Earlier today, the central bank reduced the repo rate and cash reserve ratio (CRR) by 25 basis points each.
The monetary policy actions are expected to support growth, anchor medium-term inflation expectations and improve liquidity conditions, RBI said.
"In broader terms, the monetary policy is supportive of growth both in terms of action and guidance. There is now a definite scope for lending rates to come down, which will improve the feel good factor for corporates. However, the real boost to growth has to come from the fiscal space and in this context, the budget for 2013-14 assumes critical importance," Rupa Rege-Nitsure, chief economist and general manager at Bank of Baroda, said.
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