Upbeat over a normal monsoon and the robust industry and services sectors, the Reserve Bank of India (RBI) raised its projections for economic growth to 8.5 per cent this fiscal from the earlier estimate of 8 per cent, but warned that a global slowdown may cast a shadow on the economy.
“Taking into account the progress of monsoon so far, the baseline projection of real GDP growth for 2010-11 is revised to 8.5 per cent, up from 8.0 per cent. This upward revision is primarily based on better industrial production and its favourable impact on the services sector,” the RBI said in its quarterly monetary review unveiled here.
The RBI’s projection is in line with the government and the Prime Minister’s economic think-tank PMEAC’s forecast for the fiscal. However, it is less than the optimistic forecast of 9.5 per cent made by the IMF for this calendar year.
The central bank said the growth prospects of the Indian economy have improved since April, 2010.
“Although cumulative rainfall so far has been 14 per cent below the long period average (LPA), the monsoon has been better than last year. Should overall monsoon performance turn out to be as projected (102 per cent of LPA), there will be a pick-up in rural demand,” it said.
Rising demand in the rural economy will further give momentum to the performance of the industrial sector, which has been growing firmly since October, 2009, the RBI said.
However, uncertainty about the global recovery may cast its shadow on India, the central bank warned.
“Prospects of a sustained global recovery appear to be increasingly uncertain, with possible adverse consequences for emerging market economies (EMEs), including India,” it said.
The central bank said the main challenge to India’s growth story comes from the global scenario, which recently witnessed a sovereign debt crisis in Greece, a slowdown in the eurozone and tight credit and high unemployment in the U.S.
It said there is expectation of a slowdown of the global economy in the second half of 2010, which will affect India’s manufacturing and services sectors, besides significantly reducing the flow of foreign capital into the country.
“The main risk emanates from the global scenario and has two key dimensions — a widespread slowdown in global trade will have an impact on important manufacturing and services sectors and could also have an impact in capital inflows,” the RBI said.
