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Financial stability at risk on falling growth, high inflation: RBI

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Mumbai:

India's financial stability remains potentially at a risk on falling growth, persistent elevated level of inflation and high twin deficits, the Reserve Bank today said in a report.

"...lower growth, elevated inflation, high fiscal and current account deficits remain potential risks to financial stability," RBI said in its Financial Stability Report December 2012.

Finance Minister P Chidambaram yesterday had said it was imperative to contain the fiscal deficit - occurs when total expenditure exceeds the revenue - by augmenting resources and controlling expenditure.

For 2012-13, the fiscal deficit has been revised upwards to 5.3 per cent, from 5.1 per cent in view of increased expenditure and lower-than-estimated revenue realisation.

Also, the CAD (current account deficit) in 2011-12 was 4.2 per cent and the government expects to bring it down to below 4 per cent in the current fiscal year.

CAD occurs when a country's total imports of goods, services and transfers are greater than the country's total export of goods, services and transfers.

Amid global slowdown and uncertainty, the Indian economy remains sluggish, held down by slowing investment, weakening consumption and declining exports, RBI said.

"The loss of growth momentum which started in 2011-12, extended in the current year with growth remaining below the trend, however, inflation continued to remain above the Reserve Bank’s comfort zone.

On the external front, the current account deficit (CAD) remains above the comfort level and the Indian rupee witnessed depreciation pressure, RBI said.

The wholesale price index based inflation declined marginally to 7.24 per cent in November from 9.46 per cent in the same month a year ago. However, retail inflation for the month moved up to 9.90 per cent from 9.75 per cent in October.

RBI said various domestic and external factors caused significant deceleration in economic growth of the country in last few quarters.

"GDP growth remained low at 5.3 per cent during Q2 2012. On the domestic front, structural impediments such as fall in domestic savings, persistently high inflation, regulatory and environmental issues resulting in a fall in investment demand and moderation in consumption spending have contributed to the fall in growth," it said.

The Reserve Bank has lowered this fiscal year's economic growth projection to 5.8 per cent, from 6.5 per cent earlier.

Story first published on: December 28, 2012 21:41 (IST)


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