The economy seems to have turned the corner,if the observations of Indias central bank are any indication. The Reserve Bank of India (RBI) says the macroeconomic outlook of the Indian economy,based on various business expectation surveys indicates that the earlier decline in overall business sentiment has reversed,suggesting gradual return of optimism.
The results of eighth round of survey of professional forecasters conducted by the Reserve Bank in June 2009 placed overall (median) growth rate for 2009-10 at 6.5 per cent,revised upwards from 5.7 per cent in the earlier survey. The RBIs industrial outlook survey suggests turnaround in general economic sentiments during the first two quarters of 2009-10. The forecasters survey also shows upward revision in the median GDP growth forecast for 2009-10, the RBI said on Monday,ahead of its second quarter monetary policy announcement on Tuesday. With the inflation level in the negative territory and growth deceleration abating,analysts now expect the RBI to end the soft interest rate regime.
On the inflation front,the RBI said,there were indications of inflation firming up by the end of the year due to the waning base effect of last year,increase in commodity prices,delayed progress of monsoon potentially driving up food prices,the inflationary implications of expansionary fiscal policy and accommodative monetary policy,and inflation expectations not declining in step with the WPI inflation in the face of CPI inflation remaining firm. The survey indicated average inflation in the fourth quarter of 2009-10 to be about 5.4 per cent.
According to the RBI,its Industrial Outlook Survey conducted in April-May 2009 also suggests a turnaround in the business sentiment. For the manufacturing companies in the private sector,the business expectations indices based on an assessment for April-June 2009 and on expectations for July-September 2009 improved sharply by 20.3 and 14.0 per cent,respectively,over the previous quarter,when these indices had recorded their lowest level since inception of the Survey.
For most of the indicators like production,order book position,capacity utilisation and financial situation,the decline in sentiment has been arrested and reversed. The price expectations show that more companies are expecting rise in input and output prices as compared with the previous quarters, the RBI said.
The pace of deceleration in economic growth was the sharpest in the third quarter of 2008-09,and the deceleration was halted in the fourth quarter only due to the growth turnaround in the agriculture sector.
Indicators such as the higher growth in core infrastructure sector,positive growth in IIP,gradual revival in demand for non-food credit,improving performance of the corporate sector in terms of both sales and profitability,gradual return of risk appetite in the capital market,more optimistic business expectations and forecasts as reflected in the Reserve Banks surveys could be viewed as signs of recovery from the slowdown,the RBI said.