RBI cuts growth projection to 5.8 percent

The Reserve Bank of India (RBI) Tuesday lowered its projection for the country's economic growth to 5.8 percent from its earlier estimate of 6.5 percent due to rising uncertainty in global economy and sluggish investment and consumption.

Announcing the second quarter review of monetary policy for 2012-13, RBI Governor D. Subbarao said the central bank has revised downward the growth projection for Indian economy due to combination of global and domestic factors.

"Over the last quarter, global risks have increased and domestic risks have become accentuated owing to halted investment demand, moderation in consumption spending, and continuing erosion in export competitiveness accompanied by weakening business and consumer confidence," Subbarao said.

"The industrial outlook remains uncertain. Notwithstanding the improvement in rainfall in the months of August and September, the first advance estimates of the 2012 kharif production are about 10 percent lower than last year's production," he said.

"On the basis of the above considerations, the baseline projection of GDP growth for 2012-13 is revised downwards from 6.5 percent to 5.8 percent," the RBI governor added.

The lowering of growth forecast by the RBI comes a few weeks after the International Monetary Fund (IMF) sharply lowered India's GDP growth projection, citing sluggish structural reforms and worsening global economic situation.

The IMF early this month cut India's GDP growth forecast for 2012 to 4.9 percent from its earlier projection of 6.2 percent announced in July.

Indian economy has registered sluggish growth in the recent quarters. It expanded by 5.3 percent in January-March 2012 quarter and 5.5 percent in the quarter ended June, according to government data.

The slight improvement in gross domestic product (GDP) growth April-June quarter as compared to the previous quarter was mainly driven by growth in construction, and supported by better than expected growth in agriculture.

"On the demand side, the growth of gross fixed capital formation decelerated, while the slowdown in growth of private consumption expenditure continued. The external demand conditions and crude oil prices also remained unfavourable, adversely impacting net exports," the central bank said.
 

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