Economic growth back on track: RBI

Economic growth back on track: RBI

Washington: The Indian economy is expanding fast after the slowdown caused by the global economic crisis, and is estimated to have grown by 7.2% in 2009-10, Reserve Bank of India (RBI) governor D. Subbarao said in his address to the International Monetary Fund (IMF) financial committee meeting on Saturday.

For three consecutive years before the global meltdown, India’s economy grew at an average 9%, but the growth rate slid to 6.7% in 2008-09.

Noting that RBI has placed the baseline projection of real GDP (gross domestic product) growth for 2010-11 at 8% with an upside bias, he said the monetary and fiscal stimulus measures initiated in the wake of the crisis played an important role, first in mitigating the adverse impact from the crisis and then in ensuring that the economy recovered quickly.

Acknowledging that the developments on the inflation front are worrisome, the RBI governor said inflation, which was earlier driven entirely by supply side factors, is now getting increasingly generalized.

“Keeping in view the inflation risk, the Reserve Bank embarked on a calibrated exit from the expansionary monetary policy," he said.

Subbarao said uncertain prospects of the monsoon, volatile crude prices and demand side pressures cloud the inflation outlook.

“Keeping in view domestic demand-supply balance and the global trend in commodity prices, the baseline projection for WPI (Wholesale Price Index) inflation for March 2011 is placed at 5.5%," Subbarao said. “Against this background, the conduct of monetary policy will continue to condition and contain perception of inflation in the range of 4-4.5%..." he said.

“In this context, accommodative monetary policies in advanced economies, coupled with better growth prospects in India, could trigger large capital flows into the country. While the absorptive capacity of the Indian economy has been increasing, excessive flows pose a challenge for exchange rate and monetary management," he said.