RBI, govt rethink exit from stimulus

India's latest Index of Industrial Productivity growth figures of over 9% and rising inflation may suggest that the economy may finally be back on a faster growth trajectory, but the Reserve Bank of india remains of the view that the global economy its still not yet out of the woods. In fact, Shyamala Gopinath, Deputy Governor, Reserve Bank believes the world may be in for a double-dip recession. CNBC-TV18's Abhijit Neogy reports.

The US may have technically come out of a recession recently and China may have posted a high 19% manufacturing growth just last month, but RBI Deputy Governor Shyamala Gopinath believes that the world could still be in for another bout of mild recession before coming back firmly on the path of a stable recovery.

Shyamala Gopinath, Deputy Governor, RBI, says, "The corporate restructuring and tight credit market conditions make it quite possible that there may be another mild phase of recession before a durable recovery.There is the possibility of a jobless recovery and a W-shaped double-dipped recovery."

And she could well be right. Latest data from the US indicates that jobless data is the highest in 26 years. That may well have led some central bankers like the Reserve Bank to be wary of possible downside risks to such slow jobless recovery

"The current global recovery is likely to remain slow and gradual with significant downside risks. One of these risks is the impact of a premature or delayed withdrawal of stimulus because much of the induced global economic activity has been on account of the stimulus provided by governments and central banks the world over," Gopinath added.

Not surprisingly, the Deputy Governor has indicated that the slow jobless global recovery and the possibility of a W-shaped growth curve will impact RBI's monetary policy going forward. "The timing and pace of exit from the current accommodative monetary policy stance is therefore a major challenge for the RBI," Gopinath says.

But what is now clear is that both the RBI and the government are treading very cautiously on the stimulus exit debate. In recent days, top government functionaries including the Prime Minister and the Finance Minister have made it very clear that there will be no unwinding of the fiscal stimulus innediately. Given its own assessment of future global macro-economic conditions, perhaps the RBI may just like to play ball for the time being with its toolkit of monetary policy options.