The Hindu Business Line : RBI raises GDP growth estimate to 7 per cent

THE Reserve Bank of India on Wednesday revised upwards its overall GDP growth estimates for the current fiscal to 7 per cent, with a continued upward bias. This is against the 6.5-7 per cent estimate revealed during the mid-term review of the monetary and credit policy announced in early November.

"There is room for great optimism in growth prospects than before. It is reasonable to expect that unless there are unforeseen circumstances, the overall GDP growth for 2003-04 as a whole, which was estimated at 6 per cent at the beginning of the year and 6.5-7 per cent in November, is, on latest assessment, likely to be higher and around 7 per cent with a continued upward bias," the RBI Governor, Dr Y. Venugopal Reddy, said.

He said in the backdrop of "favourable" developments, "there is merit in maintaining the status quo as far as the monetary and credit policy measures are concerned, while pursuing the reform process." The RBI Governor felt that the buoyant economy would "provide the main springs for a strong revival of investment by industry."

Speaking at the Annual General Meeting of FICCI here, Dr Reddy also said the inflationary situation "continues to be benign for 2003-04" and that inflation is expected to be in the range of 4-4.5 per cent as against 5-5.5 per cent assumed in April last year.

The RBI Governor pointed out that the factors countering adverse global developments, including hardening of oil prices, were the cushion of ample food stocks and foreign exchange reserves, and that the country had shown "remarkable resilience" in absorbing shocks on the oil front. Moreover, inflation normally dips between mid-January and March, he said.

Dr Reddy said higher inflation rate during the past two months from 5 per cent-plus after September 20, 2003, to 5.6 per cent on December 20 "have not been unexpected, but the magnitude of price rise has been above original expectations."

On the fiscal front, Dr Reddy said though there has been a marginal improvement in the Central Government's finances since the RBI's mid-term policy, there was need for greater effort at fiscal consolidation. "At this juncture, it is necessary to reiterate the importance of pursuing promptly, and with resolve, fiscal consolidation for the medium term," the Governor said.

Stating that there were signs of credit pick-up in recent months, Dr Reddy said greater effort has to be made by the banking system "to remove procedural and transactional rigidities in the delivery of credit, particularly to agriculture and small industries." He said there was more scope for improvement in both credit pricing and credit delivery.

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