The monsoon outlook is going to be an important factor in determining Reserve Bank of India’s policy in the next three months, RBI Governor D. Subbarao said in Hyderabad on Friday.
Delivering Institute of Public Enterprise’s Golden Jubilee Lecture on ‘India’s Macroeconomic Challenges: Reserve bank Perspectives’ he said the RBI was keeping track of growth, inflation and balance of payments. And importantly it was chasing the monsoon.
Referring to India’s growth story, he said the average growth during pre-crisis period was 8.7 per cent and it started fraying beginning with the global financial crisis of 2008-09. In the current macro-economic situation, he said the growth had significantly moderated, inflation came off from the peak, balance of payments was under stress and investments have decelerated.
Describing as “disturbing” the deceleration in investments, he attributed both external and domestic factors for the slow down.
Dr. Subbarao said there were three macro-economic challenges -- managing growth inflation, mitigating vulnerability of the external factor and managing the political economy of fiscal consolidation. He said that inflation which was in double digits in 2010-11 came down to below five per cent in 2012. Inflation was driven by food inflation (both cyclical and structural), global commodity prices, and depreciation and demand pressures.
He said the growth-inflation dynamics of pre-crisis growth was quite different from post-crisis. Referring to criticism of RBI’s management of growth-inflation dynamics, he said it was not fair to say that tight monetary policy had not reined in inflation and pointed out that it came down from double digits. Admittedly growth has moderated and it was inevitable to sacrifice growth to manage inflation.