RBI ups growth estimate to 7%

The Reserve Bank of India yesterday said the economy was likely to grow around 7 per cent in 2003-04 and gave its projection an upward bias because of the 8.4 per cent second-quarter GDP growth.

Addressing the 76th annual general meeting of Ficci today, RBI Governor Y Venugopal Reddy said the improved prospects of the global economy should strengthen India's growth momentum. "There is greater optimism over growth prospects than before," he said.

The Reserve Bank had forecast 6 per cent GDP growth for this fiscal in April and raised it to 6.5-7 per cent in November.

According to Reddy, inflation trends in the last two months are expected, but the magnitude of the price rise is above original projections.

Wholesale inflation had declined to around 4 per cent in August but is now climbing. The point-to-point inflation rate touched 5.6 per cent on December 20, 2003.

Reddy said he expected inflation to fall in January-March 2004. Factors like grain stocks, forex reserves and the economy's resilience in absorbing shocks would keep inflation in the 4-5 per cent range, he said but added that the RBI would monitor the price developments to cushion supply shocks.

Asserting that overall, the developments in the economy were favourable, Reddy said forex reserves were most comfortable and there was adequate liquidity in the system.

"These gains can consolidate with further progress in credit delivery and credit pricing...moreover, investment activity, both in the public and private sectors, has to pick up to enable sustained acceleration in growth," he said.

Reddy noted a marginal improvement in central government finances since the latest credit policy in November. The states' debt swap had eased pressure on the Centre's fisc, he said while emphasising fiscal consolidation.

Though impressed by the increased priority sector credit offtake, Reddy said there was scope for improvement in pricing and delivery. "Efforts by the RBI with close cooperation from banks will have to be intensified," he said.

He also noted that the forex market continued to witness orderly conditions in recent months. There were, however, merging pressures on the distribution of the burden on adjustment, mainly between US, Euro areas and Asia, especially Japan and China.

"Under these circumstances, there appears to be considerable merit in continuing with our policy of exchange rate management of the rupee addressing essentially the volatility issues without a fixed target," he said.