The Reserve Bank today said it expects only a moderate increase in economic growth during the current fiscal in view of global uncertainties and upside risks to inflation. "Growth is likely to improve moderately in 2012-13. While inflation has moderated,risks to inflation are still on the upside," the RBI said in the 'Macroeconomic and Monetary Developments in 2011-12' report released on the eve of annual credit policy. The government expects the growth rate to rise to 7.6 per cent during 2012-13 from the 6.9 per cent in the previous fiscal. The Asian Development Bank (ADB) in its recent report had pegged the growth at 7 per cent in the current fiscal. ".growth may have bottomed out in third quarter of 2011-12,but output growth is expected to gradually recover in 2012-13,albeit modestly," the RBI said. Inflation,it added,is likely to remain sticky at about current level during the year with the probability of further significant moderation being small. On the positive side,the RBI also expects agriculture sector to do better in the current fiscal. "Prospects for agriculture are encouraging. The Reserve Bank's own assessment of leading indicators suggests that the 2012 monsoon may be normal",the report added. The RBI said that global uncertainties and domestic cyclical and structural factors resulted in growth slowing to an estimated level of 6.9 per cent during 2011-12. "After two successive years of fairly robust growth of 8.4 per cent,gross domestic product (GDP) is estimated to decelerate sharply to 6.9 per cent during 2011-12,with a marked slowdown in agriculture,mining and quarrying,manufacturing and construction sectors," RBI said. Analysing the sectoral development,the RBI said three sectors of the economy - agriculture,industry and services - slowed down. "Moderation in agriculture notwithstanding,the year witnessed an all-time high food grains output. "The services sector moderated,reflecting the slowdown in construction,while industrial growth slackened due to the disappointing performance of mining and manufacturing," it said. The RBI increased the key policy rate 13 times between March 2010 and October 2011 to tame inflation,but it did not hike the repo rate (short-term lending rate) in the last three policy reviews. To maintain growth momentum,the RBI,since October 2011,kept the repo rate at 8.5 per cent,while it cut cash reserve ratio (CRR) twice - 50 basis points in January and 75 basis points in March 2012. ".the two-step lowering of the cash reserve ratio in January and March 2012 and the peaking of the interest rate cycle should provide some momentum," it said. The RBI further added that the year 2012-13 is likely to be a year when the economy starts to recover slowly from the large negative output gap created due to growth falling significantly below trend. "The growth in first half of 2012-13 may be dragged down by low pipeline investment. However,demand conditions may improve slowly," RBI said.
