India can still grow at 7-8% or even more: Subbarao

Rues current account deficit, inflation as major concerns for Indian economy

Enumerating the challenges faced by the Indian economy, Reserve Bank of India (RBI) governor Duvvuri Subbarao today said the ‘India Growth Story’ was still intact. Speaking at the 12th RL Sanghvi Endowment AMA Lecture on Economics here, he added that India could still grow by seven-eight per cent or even in double digits annually.

In his lecture on ‘India’s Macroeconomic Challenges: Reserve Bank Perspective’, he said there were three challenges that the Indian economy faced.

“These include managing inflation dynamics, mitigating vulnerability of external trade and managing the political economy of fiscal consolidation. In these, the big challenge is the third one, since it is difficult in a democracy like India to pursue fiscal consolidation. However, I believe the India growth story is intact and we can still grow at seven-eight per cent or even double digits. We have all the ingredients. But if we don’t do it rightly, we may squander the opportunity,” he said.

Subbarao said the current account deficit (CAD) was a major concern in terms of quantum, quality and financing. “CAD should be ideally financed through foreign direct investments (FDI) but we are not doing so. Moreover, the solution for CAD is to increase exports and seeing that imports go slower than exports,” he said.

Subbarao also warned of upside risks to inflation, denting hopes of further rate cuts.  Annual consumer price inflation slowed to 9.39 per cent in April, but was still significantly higher than the wholesale price index inflation at 4.89 per cent.

When asked about banks’ non-performing assets (NPAs), especially from the power sector, Subbarao said they were disturbing. He, however, added the NPAs would not impact under the Basel-III norms being brought in since April 1, for the next five years.