press trust of india
MUMBAI, 27 JUNE: Slowdown in growth is the most worrisome factor and volatile capital flows have made the country vulnerable to “stops and reversals”, RBI Governor D Subbarao said today.
The RBI Governor, however, said the growth outlook for the current fiscal is relatively optimistic, helped by measures taken to ease the supply bottlenecks.
“The slowdown in growth is the most worrisome factor as industrial activity is stubbornly subdued and services remain below the trend,” Dr Subbarao said in his foreword to the seventh Financial Stability Report released by the RBI this evening.
Even as the RBI is estimating the growth to improve to 5.7 per cent, the Governor pointed out that overseas bodies like the IMF and the World Bank have also given an optimistic forecast.
Growth touched a a decade’s low of five per cent in financial year 2012-13. With inflation easing and positive actions from the government on the fiscal deficit front, the RBI has taken the growth-propping measure of cutting rates, but has been of late held back by high current account deficit.
Dr Subbarao flagged the issue of volatile capital flows, saying they are making the country “vulnerable to sudden stops and reversals”.
This trend was seen recently following the “slightest hint of exit from quantitative easing by the US Federal Reserve”, he said.
Dr Subbarao said that the short-term efforts are directed at financing the current account deficit, which touched a record high of 4.8 per cent in FY’13, though the last quarter of the fiscal saw a massive improvement to 3.6 per cent from 6.7 per cent in the previous quarter.
He said the perception of difficulties in doing business in the country still persist and noted that this is inhibiting investments in the country.
“There is a need to introspect as to why we rank low (111/144 in economic freedom index and 59/144 in global competitive index) and keep slipping in the rankings,” Dr Subbarao said.
He also reiterated the lessons from the post-Lehman financial crisis in 2008, saying the crisis has demolished the myth that growth can be driven by financial engineering.