India growth to plunge to 5.7%: RBI

Growth has averaged 5.4 per cent over the previous two quarters which is lower than 6.5 per cent in 2011-12 and 6.7 per cent in crisis-hit 2008-09.

“Although,growth in Q2 of 2012-13 is unlikely to be significantly different,gradual recovery could follow later in the year,” RBI added.

RBI said that part of the slowdown in the economy was due to weak global growth,domestic factors have magnified the growth slowdown. High inflation which necessitated monetary policy action,partly contributed to slowdown.

“But,beyond this,inadequate movement on the policy and implementation fronts worsened the investment climate that had already suffered due to global uncertainties and the cyclical downturn in the Indian economy,” RBI added.

It said that while a slew of policy measures by the government have started addressing concerns,the measures by themselves are “not sufficient” to address the macro and structural problems constraining growth.

“If the announced domestic reform measures are well-implemented and complemented by further reforms,the economy would turn-around,despite the current expectations and sluggish global growth.

“…the key to recovery lies in policy coordination among different government agencies and the removal of structural bottlenecks in infrastructure projects,” it said.

Referring to inflation,RBI said it has stayed sticky around 7.5 per cent. Persistent non-food manufactured product inflation,despite the growth slowdown has emerged as a concern,it added.

“While the near-term inflation risks are on the upside,inflation is expected to moderate from Q4 of 2012-13. However,improved supply responses and moderation of wage inflation is vital for bringing down inflation to comfort level,” it said.

The Reserve Bank said that despite the recent moderation in the price of crude oil,liquidity impact of quantitative easing and geopolitical uncertainties constitute upward risks to commodity prices.

“On the domestic front,the reform measures-induced hike in administered prices would cause inflation to rise in the near-term but ease fiscal pressures in the medium-term,which will help soften inflation,” it said.

RBI’s credit policy has been aimed at maintaining monetary conditions in line with the objective of containing inflation,while ensuring that liquidity conditions remain supportive of recovery.

The latest forecasts of GDP growth by various agencies,including IMF and ADB,are in the range of 5.6 per cent to 6.7 per cent.

RBI,however,said that the dampened investment climate may revive gradually following the demonstrated intent for fiscal policy reforms and commitment to much-awaited active policy to propel the economy forward.

“This will help improve business sentiments which remained cautious driven by uncertainties in the global and domestic economies,” it added.

Key reforms taken by the government in the recent times include,hike in diesel prices,capping supply of subsidised LPG cylinders and further liberalisation in FDI policy.

Earlier in the day,Finance Minister P Chidambaram unveiled a five-year road map for fiscal consolidation to promote investments,contain inflation and take India to high growth trajectory.

He also expressed confidence that the government will raise the targeted Rs 30,000 crore from stake sale in the public sector undertakings (PSUs) in the next five months.