While everyone else is revising the Indian economy’s growth estimate for the current financial year, the Reserve Bank of India (RBI) sticks to its projections since it has already factored the moderation in economic expansion in its annual monetary policy. However, the central bank feels that non-performing assets of banks are rising, which is a matter of concern, but is not alarming.
“We have said growth will moderate... We stick to our target,” RBI Deputy Governor K C Chakrabarty told reporters on the sidelines of a convocation function of International Management Institute (IMI).
Considered conservative, RBI has projected the Indian economy to grow by eight per cent this financial year, against the Economic Survey’s prediction of nine per cent.
However, rising inflation and elevated global fuel prices have forced the finance ministry to revise down its projections. It will come out with the revision some time this month.
Last year, the economy grew by 8.5 per cent, but the growth in the last quarter of the year fell down to over a year low of 7.8 per cent.
The latest PMI survey also showed that services sector growth has plummetted to a 20-month low in May this year.
When asked that industry chambers are blaming RBI for stiffling growth by rising policy rates, Chakrabarty said, “It is because of high inflation. We have to strike a balance between inflation and growth.” Inflation, though down to 8.66 per cent in April from 9.04 per cent in March, is still at elevated level. Besides, petrol price hike of Rs 5 a litre is yet to be factored in. Decision on increasing prices of diesel and LPG is yet to be taken.
The central bank has raised policy rates for the ninth time in its annual policy for 2011-12 announced in May since early 2010. This time the rates were hiked steeply by 50 basis points.
He skirted a query whether RBI will press the pause button on raising repo and reverse repo rates (short-term lending and borrowing rates) at its monetary review on June 16, saying, “Wait for the governor’s statement that day.”
On apprehensions that lower growth and high global crude prices will widen fiscal deficit much more than 4.6 per cent of GDP as predicted by the Finance Ministry for the current financial year and this may militate against RBI’s tight monetary policy, the deputy governor said, “Why should I not believe the Finance Ministry?” It is confident that it will rein in fiscal deficit at 4.6 per cent of GDP, despite many economists casting doubts about the optimism.
On the rising NPAs of banks, the deputy governor said they are rising and it is a matter of concern. However, he hastened to add that NPAs are not as high and still manageable. “The situation is not alarming, but the banks will have to raise their risk management capabilities. Banks will have to take corrective steps to contain NPAs,” he said.
Last month, Finance Minister Pranab Mukehjee had also said that bad debts of PSU banks in the last financial year was a matter of concern.
