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Oct 24, 2011, 10.48 PM IST
The RBI today released the Macroeconomic and Monetary Developments Second Quarter Review 2011-12. The survey lowered FY12 GDP growth to 7.6% vs 7.9%.
The RBI said inflation remains "sticky" even as risks to growth have increased.
The survey has pegged FY13 GDP growth at 7.7% vs 8.3%.
Here is what the RBI has to say:
Inflation risk, however, persists. The policy choices have become more complex. In this backdrop, the monetary policy trajectory will need to be guided by the emerging growth-inflation dynamics even as transmission of the past actions is still unfolding.
Various surveys conducted, both by the Reserve Bank and the outside agencies, suggest that business expectations have suffered, while inflation expectations remain high. As a further step for increased transparency in monetary policy formulation, the Reserve Bank for the first time is releasing surveys conducted by it along with the 'Macroeconomic and Monetary Developments', one day ahead of the policy.
Global Economic Conditions
Growth moderating below trend in 2011-12
In addition to domestic factors, global factors may slow down growth. With the increasing linkage of domestic industrial growth with global industrial cycle, some further moderation is likely ahead, given the weak global PMIs.
Capacity constraints seem to be easing in some manufacturing segments, especially cement, fertilizers and steel. Construction activity has slowed and leading indicators suggest that going forward, services growth may slightly weaken.
Planned corporate fixed investment in new projects declined significantly since the second half of 2010-11 and has stayed low in Q1 of 2011-12. Consequently, the pipeline of investment is likely to shrink, putting growth in 2012-13 at risk.
Private consumption is also starting to soften in parts, but it remains robust overall as is evident from corporate sales performance. Sales growth continues to be healthy, but profits are under pressure.
Fiscal slippages during 2011-12 may complicate the task of aggregate demand management. Key to growth sustainability lies in supporting investment by rebalancing demand from government consumption to public and private investment.
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