The Reserve Bank of India (RBI) today released the Macroeconomic and Monetary developments third quarter review 2008-09.
According to the RBI report, India's economy may grow at its weakest pace in five years in the current fiscal year, dismantled by the global recession.
The economy may grow 6.8 per cent in the year ending March 31, 2009, as compared to 7.7 per cent forecast in September 2008.
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The RBI sees further drop in inflation on easing domestic commodity prices.
Meanwhile, raising tax exemption limits and slabs will help increase consumption demand, the central bank said in the report.
With domestic economic activities slowing down in recent months, the RBI today indicated that further measures to stimulate growth could be in the offing.
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The central bank, which cut its signalling rates several times since October, said the expenditure is slated to increase on account of the fiscal stimulas measures undertaken by the government to tackle economic slow down.
The RBI cut the cash reserve ratio to 5.5 per cent, repo rate to 4.5 and reverse repo rate to 4 per cent since October as part of coordinated efforts with the Finance Ministry to support the sagging growth.
Meanwhile, the country's exchequer is likely to witness a slowdown in tax revenue in the coming months owing to moderation in economic activity, the RBI said.
The central bank said that consumption expenditure is also expected to improve in the medium-run due to changing pattern of demographic profile in India.
"Furthermore, India's export destinations have diversified in recent years. Other countries, such as China, Hong Kong, Singapore, the UAE, Germany and other Asian countries, have emerged as important destinations for India's exports," the apex bank said.
According to the central bank, overall, the balance of risks on growth outlook is tilted towards downside.
"While downside risks would be extending to the future, the fall in commodity including oil prices and the co-ordinated fiscal and monetary stimulus are expected to revive the growth momentum," it said.