RBI may peg 9% growth in 5-year Plan

The Reserve Bank of India (RBI) may estimate a higher average growth of the economy during the five-year Plan period 2006-07 to 2011-12.

According to sources, the average rate of growth may be raised to 9 per cent against the current expectation of 8.5 per cent. This would endorse the government's growth projection of 10 per cent in the terminal year of 2011-2012.

The higher growth expectation has been primarily because of rapid growth in the services sector, in which the major contribution is that of productive services.

Among services, productive services are those which provide impulses for other categories of economy such as agriculture and manufacturing.

Services sector constitutes 60 per cent of the gross domestic product (GDP) and manufacturing and agriculture have equal share of 20 per cent each.

However, inflation remains a concern for the regulator even as it is felt that essential commodities which is a major factor for the inflation to go up, could be best tackled by fiscal measures rather than monetary, said a banker.

The worry for the market rather has been the status of liquidity to fund high growth. While banks have been engaged in term lending, the resources are mostly available for the short term of 1 to 3 years.

In the pre-credit policy meeting with the RBI, most banks have raised this issue to which the regulator has assured liquidity support in the fourth quarter if required.

It is currently maintaining a stock of around Rs 70,000-80,000 crore under the market stabilisation scheme, cash reserve ratio, open market operations. Bankers feel that while liquidity may not be an issue but it will be available at a higher cost.

This may push up cost of loans for the retail customer as the corporate sector is flush with funds.

In fact, most of the banks are currently raising bulk deposits from the corporate at higher rate which is getting factored in the loan pricing.