The Reserve Bank of India’s Annual Report submitted to the union government is a statutory publication on behalf of its central board of directors. The most recent one, released last week covers the period July 1,2013 to June 30 2014 and like its predecessors deals with the macroeconomy as well the central bank’s working including financial accounts for the previous year.(2013-14). Much of the interest however lies in understanding the central bank’s views on the contemporary economic issues. The growth -inflation dynamic was bound to figure prominently as indeed it does in all RBI statements., There cannot be substantial changes in the RBI’s monetary stance between the third bi-monthly monetary review of August and the annual report. With inflation continuing to remain at high levels, the possibility of a rate cut in the near future is practically ruled out. This is very much in line with recent monetary policy statements .The RBI’s hawkish stance to counter inflation -interest rates have been raised three times by 25 basis points each since September last,-will therefore continue. Retail inflation which was coming down reversed course in July on the back of high vegetable prices. There are important upside risks to inflation .The geo political crisis in West Asia is potentially a great destabilising factor, although global crude prices have been drifting downwards recently. Revisions in domestic administered prices such as on diesel and in railway fares can exert pressure on the domestic price level. Despite these factors, the RBI feels that its inflation projection of 8 per cent by January 2015 is achievable .However, the target for 2016 at 6 per cent is subject to medium -term risks,
The RBI has retained its growth forecast for the year at 5.5 per cent, up from the below 5 per cent growth rate seen recently. There has been a revival in industrial activity and construction and the monsoon deficit has not been as substantial as expected. The government is more optimistic than the RBI, pegging growth at 5.8 per cent and improving as interest rates hopefully come down and the growth-stimulating efforts of the new government start making an impact. The differences between the government and the RBI are not as significant as it is made out to be, The NDA government has struck a harmonious chord with the RBI ,whose views not only on inflation but also on currently important matters such as infrastructure projects will count in policy formulation. Making a vision statement for the first time in the annual report the RBI lists ,among others ,an early licensing of differentiated banks -the payment banks and small banks These will play a very important role in extending financial inclusion.
