Growth recovery contingent on improved governance: RBI

Attributing slow pace of recovery to policy uncertainties, the Reserve Bank today said improvement in governance and removal of structural impediments are necessary to prop up economy.

Domestic policy uncertainties, governance concerns, the impact of earlier monetary tightening and the slacking of external demand continue to adversely impact growth, RBI said in a report on the eve of 2013-14 annual policy.

"Growth continued to slow down in 2012-13, but could witness a slow-paced recovery later this year, contingent on improved governance and concerted action to resolve structural bottlenecks," it added.

In the long run, it said structural measures, including reforms and improved governance, would play a catalytic role in moving growth towards its potential levels.

On financial markets, the RBI said after witnessing a rally in third quarter of 2012-13, the domestic equity markets weakened during the last quarter, mainly due to political uncertainties at the Centre in the wake of coalition politics process.

As per the report, industrial growth is "now virtually facing stagnation" resulting from a combination of factors, most notably the investment cycle downturn, supply-side bottlenecks, governance problems and weak external demand.