Uneven recovery tops RBI agenda

Though the index of industrial production expanded 11.7 per cent in November, the Reserve Bank of India (RBI) sees the recovery still skewed and says the uneven recovery would dominate the central bank’s thinking.

“There is still an imbalance in the pattern of growth. That does not mean that the recovery is not happening, but it does suggest that recovery is somewhat uneven. I think that’s really the consideration that will dominate our thinking,” Subir Gokarn, deputy governor of RBI, said at the sidelines of banking conference Bancon on Tuesday. IIP rose 11.7 per cent in November compared with 10.3 per cent in October and 2.5 per cent a year ago.

Whether economic recovery was giving the central bank comfort to tighten monetary policy stance, Gokarn said, “We have said in our October statement that we were shifting the balance a little bit from exclusive focus on growth to managing the recovery. The assessment still prevails.”

He also reminded that RBI was mindful of the fact that inflation, which is mainly due to food prices, might spiral into a general inflation.

“We want to keep the recovery going and support it in every possible way without allowing it to spiral into undesired rate of inflation,” he said.

“The general expectation is that food prices will start to moderate. If you go by that logic, which I am not necessarily endorsing, then we should expect inflation pressure on food to start abating beginning 2010-11. But food prices have persistently surprised us over the past few months,” he added.

On bank credit, which is growing at the slowest pace in the decade, Gokarn said though it was not an issue as funding requirement was met through other channels, but said RBI would have a watch on the movement of funding from conventional to unconventional sources.

“Whether they (companies) are getting from banks or other sources is less of an issue. If credit or liquidity is not a constraint, then it is not a matter of concern. Moving away to unconventional sources from conventional sources is something we need to watch out. Not so much from a source point, but from a risk perspective,” the deputy governor said.