Finance minister Pranab Mukherjee on Friday said the Reserve Bank of India (RBI)'s move to keep key rates unchanged showed the central bank's concerns on slowing economic growth.
“The RBI governor has chosen to reflect his concerns on growth, which has faltered in the past few months, with industrial production in October undergoing a significant contraction across sectors,” Mukherjee said.
For the first time since the global financial crisis started in 2007, India’s industrial growth entered negative territory, of 5.1 per cent, in October. Economic growth slowed to a nine-quarter low of 6.9 per cent in July-September. Together with 7.7 per cent growth in the first quarter, gross domestic product grew 7.3 per cent in the first half. The finance ministry had expressed hope that the second half would see a slight recovery in the economy. But with the recent industrial production data, that hope has almost been dashed.
“The need to improve business sentiments and recover growth momentum in the remaining months of the current financial year necessitated a review of the monetary policy stance,” the finance minister said. He added RBI had changed its policy stance from monetary tightening to a pause the first time this year, after the mid-quarter review of monetary policy for 2011-12. “It means there is no change in any policy variable, including the repo rate, which stays at 8.50 per cent,” he said.
This move would help in regaining India’s growth momentum, with improved macro-economic parameters in the remaining period of the current financial year, Mukherjee said.
The minister said there had been an appreciable decline in food inflation in November, resulting in a fall in headline inflation for that month. However, inflation in manufactured goods remains firm at around 7.7 per cent. Mukherjee hoped inflation would moderate further in the coming weeks.
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Headline inflation declined to a one-year low of 9.11 per cent in November, compared with 9.73 per cent in the previous month, with the rate of price rise in food articles declining to a four-month low of 8.54 per cent. However, it has been a year that inflation remained at over nine per cent inflation. Besides, the inflation figure for September was revised upwards to 10 per cent from the 9.72 per cent estimated provisionally.
Food inflation fell to a four-year low of 4.35 per cent. Chief economic advisor Kaushik Basu said he expected this to decline to below three per cent in a month.