The modest 5.3 per cent GDP growth in the fourth quarter of 2011-12 is well below the market consensus of 6.1 per cent and softer than anything seen during the global financial crisis in 2008 when GDP growth bottomed at 5.8 per cent and is bound to put severe pressure on the Reserve Bank of India and the government to act aggressively.
With a huge fiscal deficit and a widening current account deficit,CII and other industry chambers have called for immediate and bold actions from the government and the RBI in a coordinated manner to salvage the economy. Repo rate and CRR cuts are called for as also measures from the government to kick start the investment cycle,since growth in capital formation has been negative for the last few months, Chandrajit Banerjee,director general,CII,said.
In short,a comprehensive economic revival package has to be announced at the earliest. The political leadership in the country,across party lines would converge on this issue of national interest and actions would be swift and decisive, he said. Echoing the similar sentiments,Ficci secretary-general Rajiv Kumar said,Urgent and bold steps are immediately needed to prevent the economy from descending into a full blown crisis. This must be averted at all costs. According to Robert Prior-Wandesforde,director,Asian Economics,Credit Suisse,its hard to describe Indias March quarter GDP release as anything other than shocking.
The big question of course is how the RBI chooses to respond (its next meeting is on June 18). Having stated at its last meeting in April that further rate reductions are likely to be limited given persistent inflationary pressures,will it now shift to a greater emphasis on growth? We certainly believe it should,given the fact that economic growth leads inflation and is running well below everybodys estimate of trend. We also believe it will,with Governor D Subbarao able to point to the weakness of the RBIs preferred measure of core inflation as evidence that underlying price pressures justify further monetary easing, Prior-Wandesforde said.
Seeking immediate corrective actions,Assocham president Rajkumar Dhoot said: Investment environment should be improved and this may even call for some review of tax proposals.