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Feb 18, 2012, 05.25 PM IST | Source: PTI

Slowing investment may impact GDP growth in FY13: RBI panel

A top RBI advisory panel involved with the monetary policy had expressed concern that the decline in investment would impact the country's economic growth in the next fiscal.

Slowing investment may impact GDP growth in FY13: RBI panel

A top RBI advisory panel involved with the monetary policy had expressed concern that the decline in investment would impact the country's economic growth in the next fiscal.

"Some (TAC) members felt that the slowdown in investment would affect the next year's growth as well. Besides, it would also have implications for inflation, going forward," minutes of a meeting of Technical Advisory Committee released by the RBI today said.

RBI will put out a formal projection on India's economic growth for 2012-13 in the Annual Policy Statement in April.

However, RBI's baseline scenario is that the economy will exhibit a modest recovery next year, with growth being slightly higher than during this fiscal year.

India's economic growth rate, as per government data, is likely to be 6.9% this fiscal, as against 8.4% in 2010-11.

The members of TAC headed by RBI Governor D Subbarao, which met on January 18 ahead of the third quarter monetary policy, felt that the economy was clearly slowing down.

"While high interest rates had impacted investment, the overall investment sentiment was also subdued because of the structural and confidence issues that had not been addressed," the RBI added.

Amid high interest rate regime, credit to industry increased by only 19.8% in December 2011 as compared to 31.6% in the same month last year.

Inflation has started moderating but it is nowhere near the comfort zone of about 5%. TAC members expressed hope that inflation would moderate to around 7% by March-end.

They also expressed concern over the widening fiscal deficit and felt the government will "slip significantly" on the target of keeping it at 4.6% of the GDP in the current fiscal.

"Some members felt that the fiscal pressure would continue beyond 2011-12 as the monetary impact of entitlements such as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and oil, fertiliser and food subsidies would be significant," the minutes revealed.

Concerns were also expressed over the high and widening current account deficit (CAD) due to slowdown in exports and inelastic imports.

"Given the fragility of the global situation and slowdown in capital flows, there was a need to remain extremely watchful insofar as the external sector was concerned," they opined.

Exports grew only by 6.7% in December, year-on-year, while imports were up 19.8% during the period.

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