The central bank expects inflation to hover broadly around the 5.5 per cent

Projecting a modest pick-up in economic activity in the coming months, Reserve Bank on Friday pegged the Gross Domestic Product (GDP) growth rate for the current fiscal at 5.7 per cent, significantly lower than the Finance Ministry’s forecast of 6.1 to 6.7 per cent.

“The Reserve Bank’s baseline projection of GDP growth for 2013—14 is 5.7 per cent...The bank’s current assessment is that activity will remain subdued during the first half of this year with a modest pick-up in the second half, subject to appropriate conditions ensuing,” RBI said in its annual monetary policy review for 2013-14.

India’s economy grew by 5 per cent in the last fiscal, lowest in a decade, on account of poor performance of manufacturing, agriculture and services sector.

The RBI’s current fiscal year’s growth estimate of 5.7 per cent is much lower than the finance ministry’s growth projection of 6.1-6.7 per cent and Prime Minister’s Economic Advisory Council’s growth projection of 6.4 per cent for 2013-14.

It is also lower than the World Bank’s growth projection, which predicted Indian economy to grow by 6.1 per cent in 2013-14 on account of robust domestic demand, strong savings and investment rate.

Not happy with RBI’s growth projection, Planning Commission Deputy Chairman Montek Singh Ahluwalia had described its outlook as “pessimistic.”

“Reserve Bank is clearly more pessimistic than the government is. I think that the government forecast as of now is feasible. Critically what matters is, how effective we are in restoring the momentum of investment in the large projects”, the Plan panel deputy chief said.

The Reserve Bank on Friday cut the key interest rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve requirement unchanged.

Further, the central bank said it expects inflation to hover broadly around the 5.5 per cent mark in the current fiscal and will deploy “all instruments at command” to bring it down to 5 per cent by March next year.

India’s headline inflation in March fell to its lowest in more than three years at 5.96 per cent, but the consumer price index remained elevated at 10.39 per cent.

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