India to be one of fastest emerging market economies

RBI REPORT ON CURRENCY & FINANCE: 2002-03

Reserve Bank of India's (RBI) report on currency and finance expects India to stand out as one of the fastest growing countries among the emerging market economies.

The estimate for GDP growth for 2003-04 has been pegged at 7 per cent , only next to china's 7.5 per cent.

In the cross-country comparison based on IMF projections, the growth in real gross domestic product for 2003 has been forecast at 7 per cent as against 4.3 per cent in 2002.

In fact, the RBI estimate has been made with an upward bias as there are scopes for further improvement. In contrast, the projection for China has declined to 7.5 per cent in 2003 compared with 8 per cent in 2002.

The forecast is based on satisfactory agricultural GDP backed by good north east monsoon, growing momentum of industrial recovery with string export demand reinforced further by improved prospects for domestic investments.

The improved prospects of real activity globally should also add to the strength to the upwards momentum in growth , said the report.

Although the report has expressed concern over the fiscal situation as the tax GDP ratio still remains at low levels, it has brought out the fact that the high fiscal deficit has not been binding on the private sector due to growing saving-investment surplus.

Moreover, in 2001-02 and 2002-03, the private sector surplus has spilled over to the external sector in addition to financing the public sector deficit.

The rising secondary market and strong macro economic fundamentals have added to the strong business confidence.

The report is of the view that capital flows are likely to continue. In this backdrop of current policy stance on exchange rate management and reserves accretion, the report stated that it would be appropriate for the RBI to continue maintain orderly conditions in foreign exchange markets as well as maintain stable conditions in the financial markets through monetary measures.

It has also mentioned that while the depreciation of US dollar has so far been relatively orderly and further depreciation remains a risk to global recovery under the shadow of twin deficits.

The monetary policy has moved to mild tightening in some countries whereas there has been a neutral bias with expectations of tightening , particularly in US.

These uncertainties would necessarily impact global liquidity as well as flow of resources to emerging countries including India. theless, it has been clarified that the relative weight of fundamentals and confidence in the economy appears to be more than the global liquidity factors that govern the capital flows in India.