RBI to revisit growth forecast in January

Reserve Bank of India Governor D Subbarao today said the central bank would revisit its growth projection for the current financial year ending March in its monetary policy review next month.

"We will revisit that number in the January policy," Subbarao told reporters when asked if the sharp growth posted in the second quarter would lead to a review of the growth projection for the entire year.

The central bank has pegged India's growth for the current year at 6 per cent with an upward bias.

The economy expanded at 7.9 per cent in July-September, beating all estimates by a wide margin. India's gross domestic product (GDP) had expanded 7.7 per cent a year ago and 6.1 per cent in April-June. Subbarao, however, refused to comment if rising inflation coupled with improvement in economic growth could lead to monetary tightening.

The governor said the central bank was keeping a close watch on price stability and flow of credit to productive sectors. “One of the things the RBI does is to provide price stability, financial stability and ensure that credit flows to productive sectors,” Subbarao said.

The wholesale price index (WPI) inflation in October was 1.34 per cent, compared with 0.50 per cent a month earlier. Within WPI, it is the runaway prices of food articles that is giving a tough time to policy makers. For the week ended November 21, domestic prices of food articles rose 17.47 per cent from 15.58 per cent a week earlier, mainly on account of a sharp increase in vegetable prices. Today, the Prime Minister's Economic Advisory Council Chairman C Rangarajan said RBI would have to take monetary action if food prices continued to rise.

“The behaviour of food prices is a worry. If this persists, it can affect others like manufacturing inflation, that will require monetary action,” Rangarajan said.

The RBI governor stressed the need for banks to increase lending to the priority sectors. “Priority sector lending is being closely monitored by RBI. We need to deepen lending to the sector.”

Subbarao said non-banking financial institutions may have a bigger role to play for “niche loans” compared with banks. “NBFCs serve a valuable purpose. They can reach out where banks cannot provide loans.”