Growth self-accelerating, says Reddy

Yaga Venugopal Reddy, Governor, Reserve Bank of India, said there is tangible evidence of self-accelerating growth of the Indian economy.

"From an annual average growth rate of 3.5% during 1950 to 1980, the growth rate of the Indian economy accelerated to around 6% in the 1980s and 1990s. In the last four years (2003-04 to 2006-07), the Indian economy grew by 8.6%. In 2005-06 and 2006-07, it had grown at a higher rate of 9% and 9.4%, respectively," Reddy said while addressing the Central Bank of the Russian Federation on Monday.

Reddy added: "An important characteristic of the high growth phase of over a quarter of century is resilience to shocks and considerable amount of stability. We have witnessed one serious balance of payments crisis triggered largely by the Gulf war in the early 1990s. Credible macroeconomic structural and stabilization programme was undertaken in the wake of the crisis. The Indian economy in later years could successfully avoid any adverse contagion impact of shocks from the East Asian crisis, sanction like situation in post-Pokhran scenario, and border conflict during May-June 1999. Seen in this context, this robust macroeconomic performance, in the face of recent oil as well as food shocks, demonstrates the vibrance and resilience of the Indian economy."

According to the speech released by the RBI on its website today, Reddy also said there were signs of deceleration of credit growth recently.

"The acceleration of growth in the real estate sector has been reflected in the upward shift in the growth trajectory of credit extended by commercial banks, which in the past three years has been unprecedented in the history of the Indian economy. There has been some sign of deceleration in the recent period,"  he said.

Reddy repeated that the central bank expected economic growth of 8.5% in the fiscal year ending March 31, 2008, and wanted to contain inflation close to 5%.

Reddy also reiterated the stand of gradual reforms in the financial sector. "In view of the proven success of our overall approach to reform over the last fifteen years, there is considerable merit in pursuing the gradualist, participative and harmonious approach towards further reforms in financial and external sectors. Since it is generally accepted that financial and external sectors in India are reasonably strong and resilient, high priority is being accorded for further reforms in the fiscal sector, agriculture, physical infrastructure, especially in power and urban areas, and delivery of public services such as water, health and education.

"Progress in these sectors will help, over the medium term, enhance competitiveness and accelerate reforms in financial and external sectors, in a harmonious and non-disruptive manner, thus, reinforcing self -accelerating growth with assured stability."