Mumbai: Reserve Bank of India (RBI) governor D. Subbarao on Monday said that India may need to “exit from accommodative monetary policy earlier than advanced economies”.
An early exit, he said, would call for careful management of trade-offs. While growth concerns warrant a delayed exit, inflation concerns call for an earlier exit, Subbarao said.
However, an early exit on inflation concerns would run the risk of derailing the fragile growth, while a delayed exit may engender inflation expectations. Wholesale price index-based inflation for the week ended 19 September is currently 0.83%, up from 0.37% the previous week. Inflationary pressure emanating from higher food prices could limit the scope for monetary policy action, he cautioned.
“Unlike the major advanced economies, growth remains positive’,” he said. Real gross domestic product was 6.7% in 2008-09 and is expected to be 6% (with an upward bias) as per the Reserve Bank’s July 2009 projections.
Subbarao also said that “Risk appetite is now returning. There are signs of recovery in portfolio investments to the emerging market economies.” Portfolio investments by foreign institutional investors in Indian equity markets amounted to $13.6 billion between 1 April and 18 September this year, against outflows of US$5.2 billion in the corresponding period last year, reflecting a turnaround of almost $19 billion.