RBI expects mild recovery in economic growth for 2012-13

The central bank in its annual monetary policy statement had projected an economic growth of 7.5% in the current fiscal

Unfazed by 3.5% decline in industrial output in March, the Reserve Bank today exuded confidence that the current fiscal will witness mild recovery in the economic growth.

"Our outlook for the year 2012-13 is for a mild recovery in growth," RBI Deputy Governor Subir Gokarn said at a CII event here.

The RBI in its annual monetary policy statement had projected an economic growth of 7.5% in the current fiscal. This would be higher than 6.9% estimated in 2011-12 fiscal.

Reflecting investment deficit, industrial production fell 3.5% in March, for the first time in five months. The factory output, as measured by the Index of Industrial Production (IIP) for March, 2012, compares with an impressive 9.4% growth a year ago.

"We expect some bottoming out of this process (slowdown) over the course of the year," Gokarn said, adding that a number of other data is also showing signs of slow down in manufacturing.

The manufacturing segment which accounts for 75% of the IIP, contracted by 4.4% on slackening exports and poor demand resulting from high interest cost of raw material and borrowing. The sector had shown an 11% growth a year ago.

"We have to live with the possibility that global slowdown determined by the oil prices, capital flows and demand conditions will remain challenging for time to come. However, the good news is domestic growth is balancing and stabilising," he said.

Gokarn further said that the rising oil prices is a cause of concern and measures should be taken to reduce subsidies.

Crude oil prices have been rising due to geo-political reasons, including the Iran situation. The prices had touched a high of $125 a barrel in March although it has receded around $113 a barrel now. India imports about 80% of its crude oil requirements.

Expressing concern about food inflation, especially the price rise in protein-based items which is "showing signs of rising", Gokarn said it was important to step up supply of these items.

He said that whether RBI will lower rates in its June 18 policy would depend on the growth-inflation balance.

To a query on whether the volatility of rupee would continue, Gokarn said: "We are trying to curb it and we are using the instruments that we think are appropriate in any given situation to curb it and we will continue to do that".

The rupee today fell by 21 paise to close at Rs 53.63 against dollar. This is the sixth straight week of loss for the domestic currency.

To ensure more availability of dollars, the RBI had yesterday asked exporters to sell 50% of their foreign exchange holdings.