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RBI tracks rebound route

Apex bank picks four pillars of growth

Mumbai, Aug. 21: The Reserve Bank of India today projected a GDP growth of 5.5 per cent this year — signalling a break from the sub-5 per cent growth in the preceding two years — which would propel the stuttering Indian economy “from a slow, bumpy lane to a faster highway”.

“The Indian economy could grow in the range of 5 to 6 per cent in 2014-15 with risks broadly in balance around the central estimate of 5.5 per cent,” the RBI said in its annual report released here today.

The growth will be buttressed by a likely revival in industrial and construction activities.

The turbo-chargers for the economy will come from just four sectors: mining, manufacturing, construction, and trade, hotels, transport, and communications. “These four segments account for 50 per cent of GDP,” it added.

The central bank said inflation based on the combined consumer price index (CPI) was broadly in line with the baseline inflation trajectory that the RBI had indicated at the start of this calendar year.

Inflation would be capped at 8 per cent in early 2015, the RBI said, even though a spike in vegetable prices indicates an upside risk to this assessment.

But there were some visible positive signs on the inflationary front with a price correction in select items, including tomato.

Moreover, the recent decline in world oil prices would offset the pressure from food prices.

However, the RBI did see some risks to the medium-term inflation target of 6 per cent by January 2016 and said it remained “committed to supporting the disinflationary process” — a comment that will be read as a sign that rate cuts aren’t likely until well into next year, if at all.

The fiscal deficit was likely to go down this year and much will depend on the concerted efforts that have been spelt out in the Union budget.

“The intent to lower the gross fiscal deficit to 3.6 per cent in 2015-16 and further to 3 per cent in 2016-17 is both feasible and reasonable,” the RBI annual report said.

It said lowering the revenue deficit was, however, proving to be more difficult and said much was expected from the Expenditure Reforms Commission which was formed recently and which is expected to submit its interim report before the next budget and its final report later in the year.

The RBI expects the current account deficit (CAD) to widen from the levels in 2013-14 but expected it to remain within a sustainable level.

CAD had become an area of major concern in 2012-13 when it soared to 4.8 per cent of GDP — prompting global credit rating agencies to warn of a possible downgrade in the sovereign rating to junk bond levels.

The government clamped down on gold imports which helped slash CAD to 1.7 per cent of GDP in 2013-14.

The RBI today said the impact of a weak monsoon on India’s farm production and economy is likely to be limited as rainfall levels have improved considerably over the past one month.

 
 
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