Growth forecast for FY13 trimmed to 5.7%

'WPI inflation at 7.7% versus 7.3% earlier'

A day before the Reserve Bank of India (RBI) is set to release its second quarter monetary policy statement, forecasters have raised the inflation forecast and trimmed the economic growth outlook for the current financial year.

The median projection for FY13 in RBI’s Survey of Professional Forecasters has been lowered to 5.7 per cent for growth, while that for average wholesale price index- (WPI) based inflation is revised upwards to 7.7 per cent. Earlier growth was seen at 6.5 per cent and WPI inflation at 7.3 per cent.

“Growth-inflation balance warrants careful policy calibration as growth slows, but inflation risks persist,” the central bank said in its second quarter review of macro-economic and monetary developments.

Inflation has remained sticky at around 7.5 per cent so far in FY13, and persistent non-food manufactured product inflation, despite the growth slowdown, has emerged as a concern, the central bank noted.

According to RBI, the contribution of individual commodities to the increase in non-food manufactured products’ prices has been asymmetric.

A few items such as gold and ornaments, ammonium phosphate and grey cement have been contributing disproportionately to the inflation in non-food manufactured products’ prices.

The central bank cautioned that near-term inflation risks are on the upside, but it predicted moderation in prices from the fourth quarter of this financial year.

“Improved supply responses and moderation of wage inflation is vital for bringing down inflation to comfort level,” it added.

On growth, RBI said there was a need to implement the recent policy reforms announced by the government to revive the economy.

“Economic indicators suggest that slowdown has continued in 2012-13. However, recent policy reforms should help in arresting the downturn. They may, on their successful implementation, support recovery later,” the banking regulator said.

The potential growth rate of the Indian economy peaked around the middle of 2007-08 and has since continued its downward slide, to around seven per cent.

“With negative output gap persisting, growth in 2012-13 is likely to fall short of the Reserve Bank’s earlier projection,” the central bank said.

Earlier in the day, Finance Minister P Chidambaram detailed a five-year road map for fiscal consolidation.

He expressed hope that RBI would take cues from the government’s steps and act on rates.