The Hindu Business Line : RBI signals dip in growth; food prices may fuel inflation

Mumbai, Jan. 28 The Reserve Bank of India seems to be signalling a slight slowdown in the overall economic growth, while also warning of potential inflationary pressures in the period ahead, due to high international food prices.

Credit offtake has shown a slight slowdown in the third quarter of the fiscal, while fund mobilisation through equity issuances has shown a big jump, said RBI’s Third Quarter Review of the Macroeconomic and Monetary Developments.

Since pass-through of higher international oil prices to domestic prices remains incomplete, inflation has remained suppressed, noted the Review. Elevated international food prices also pose potential inflationary pressures in the period ahead.

Credit growth has seen a slight moderation in the April-November 2007 quarter.

The infrastructure sector, too, recorded a lower growth, at 6 per cent, against 8.9 per cent a year ago.

The moderation in growth of petroleum refinery products was due to a high base, decline in refinery output in some public sector refineries, and lower capacity utilisation. Other infrastructure industries like crude petroleum, coal, and steel have seen a slowdown because of reasons such as decline in production, capacity constraints, and a high base effect, the report said.

Growth in bank credit to the commercial sector moderated somewhat during 2007-08 from the strong pace of the previous three years. Non-food credit extended by scheduled commercial banks expanded by 22.2 per cent year-on-year as on January 4, 2008, as compared with 28.4 per cent at end-March 2007 and 31.9 per cent a year ago.

Corporate resources

The corporate sector continued to meet its funding requirements from non-bank sources. Resources raised through domestic equity issuances during April-December 2007 were higher by 40 per cent (at Rs 31,897 crore) from a year ago.

Mobilisation through ADRs and GDRs were higher by 43 per cent at Rs 11,439 crore. Net mobilisation through ECBs during April-September 2007 increased by 50 per cent.

Going forward, the RBI said, increased exposure to ECBs may lead to higher costs for corporates, due to the recent US sub-prime crisis and developments in the international financial markets.