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| RBI raises GDP growth forecast to 8.5 per cent |
| BS Reporter / New Delhi Jul 28, 2010, 01:47 IST |
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Adds reason to IMF’s projections.
Amid the hype and surprise over the International Monetary Fund’s 9.4 per cent growth forecast for this year, the Reserve Bank of India (RBI) today tried to inject some reasoning into the numbers, as it today revised India’s growth projection to 8.5 per cent from 8 per cent estimated earlier.
It told bankers during a post-policy closed-door meeting that its estimates were for 2010-11. In contrast, IMF’s revised projections were for calendar year 2010.
While this might sound elementary, there was a word of caution, too. Unlike January-March, when the Indian economy is estimated to have grown by 8.6 per cent according to official estimates, January-March 2011 may not be as good, pulling down the overall growth rate for the financial year ending March, said a banker present in the meeting.
In the policy statement, RBI merely said the increase in its forecast was due to better-than-expected industrial production and its favourable impact on the services sector. Besides, it had factored in the global scenario. In fact, during the meeting with bank chiefs, RBI reiterated growth remained fragile and “anemic”, said a banker.
The projections of IMF, which bettered its earlier forecast of 8.8 per cent growth during 2010, had surprised many, including Finance Minister Pranab Mukherjee, who had said he did not want to argue with the multilateral agency, for a change.
“We are happy that the minister is happy with us but that was not the reason for our projection. I checked with the team incharge of making projections and they stand by the numbers. They look at the different components of demand, such as private consumption, private investment and exports, and it leads them to the forecast they have made,” IMF Chief Economist Oliver Blanchard later told Business Standard in an interview.
Most agencies, including the government, have predicted that the Indian economy would grow by around 8.5 per cent this year.
Credit growth
Apart from growth, the RBI brass, comprising Governor D Subbarao and the four deputy governors, sought bankers’ feedback on credit growth this year. While the central bank has estimated credit growth at 20 per cent for the financial year, so far, the growth in non-food credit up to July is estimated at to 22.3 per cent. But bankers warned a large part of the increase was on account of the loans extended to telecom companies who had to pay spectrum fee for third-generation (3G) mobile services.
At today’s meeting, banks indicated the 20 per cent projection was in order as demand remained strong.
RBI asked banks to sustain the growth in loan flow to micro, small and medium enterprises and ask branches to ensure the credit was made available to the sector, which was the largest employer after agriculture. In the year up to May 21, loan growth to small industry was estimated at 17.4 per cent, according to the latest data released by RBI.
Basel III norms
At the meeting, bankers, however, expressed their fears over the proposal to include statutory liquidity ratio (SLR) assets in the liquidity coverage ratio under Basel III norms. “SLR assets, which are essentially government securities, can be classified as illiquid, since there may not be a market to sell the entire stock in one go. If that is the case, the demand for capital will increase manifold for Indian banks. So, we have asked RBI to ensure SLR holdings are treated as liquid assets,” said a banker.
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