The Reserve Bank of India (RBI) today revised its economic growth forecast to 6.5 per cent for this fiscal, saying the situation is better than what was perceived in April though the conditions are not enough to fuel a global recovery.
The RBI Professional Forecasters Survey, sponsored by the central bank, had forecast 5.7 per cent economic expansion in April but the June numbers reflect a pick-up in economic activity.
The forecast is part of the macro-economic report by the RBI, which said signs of revival in the global financial conditions seen in Q1 of FY10 are necessary, but were not sufficient to induce a firm global recovery.
The central bank estimates comes a day ahead of the quarterly review of credit policy.
Visible signs of price pressures pose complex challenges for the conduct of monetary policy, particularly given the dampened domestic demand conditions, the RBI said.
Wholesale price-based inflation was (-)1.2 per cent as on July 11 mainly due to base effect, even as most commodity prices have moved up sharply.
Consumer price inflation remained high in the range of 8.6-11.5 per cent during May-June 2009 on a Y-o-Y basis as compared with 8-9.7 per cent in March, the RBI said, noting that hike in motor fuel prices was fuelling price rise.
Services sector too showed positive signs, with a surge in lead indicators such as railway freight and new mobile connections, besides improvement in tourist arrivals.
However, commercial vehicle production and port cargo movement decelerated in the first two months of this fiscal.
Overall, the corporate performance subdued and there was a substantial deceleration in sales growth in the second half of 2008-09. "Corporate profitability also exhibited negative growth in the last three successive quarters of the year."
The central bank said the existing financial conditions are necessary, but not enough to fuel a global recovery.
On government pegging fiscal deficit at 6.8 per cent in FY10 to boost demand and support a faster recovery, RBI said: "Notwithstanding the necessity of an expansionary fiscal response to the growth slowdown, there is a need to address the challenges for fiscal consolidation with a view to returning to the high growth path at the earliest."
The RBI Professional Forecasters Survey pegged economic growth in FY10 at 6.5 per cent.
RBI said that the growth outlook for 2009-10 needed to be assessed in the context of lead indicators so far, which it named as improved core sector performance, industrial output, demand revival for non-food credit and corporate showing.
However, it warned that there were other factors that could dampen growth outlook such as delayed progress of monsoon, decline in exports and lagged impact of poor manufacturing output of last fiscal.
