India's GDP growth one of the highest: RBI

Mumbai: The Reserve Bank of India (RBI) meets on Friday for its mid-term review and a rate cut is expected. The RBI released its Macroeconomic and Monetary Developments report on the current economic situation on Thursday.

It fears that international economic crisis is spreading and India will take time to recover.

The RBI is, however, confident that inflation will moderate further with food and fuel prices declining even further.

Referring to the annual policy, RBI said the overall stance of its monetary policy for this fiscal would continue to accord a high-priority to price and financial mark-anchored inflation expectations.

It also said that net capital flows to the domestic market in FY 09 declined after foreign institutional investors pulled out money from the system but India's reserve position continues to be strong to support the growing economy.

Total FII outflow in the current fiscal, as on October 10, stood at $7.3 billion in contrast to net inflows of $18.9 billion during the corresponding period in the past fiscal, the RBI said.

Foreign direct investment flows into the country stood higher at $16.7 billion during the April-August period in FY 09 as compared to $8.5-billion in the year-ago period, the RBI said.

Meanwhile, funds raised through ADR/GDR route more than halved in the April-August period, at $1.1 billion as against $2.8 billion in the same period in last year.

During the period, NRI deposits recorded a net inflow of $273 million as against a net outflow of $168 million in the corresponding period in last year, mainly due to inflows under the rupee deposit accounts, the RBI said.

However, India's foreign exchange reserves continued to be at comfortable level and consistent with the country's economic growth, the size of external sector in economy and the size of risk-adjusted capital flows, the RBI said.

RBI noted that the country's GDP growth continues to be one of the highest in the world.

The moderation seen in core sectors in FY 2009 reflected a cyclical downturn and is unlikely to pose challenges to the economy with the structural drivers of growth continues to be favourable, it said.

On account of a lower growth in both manufacturing and electricity sectors, the year-on-year expansion in the industrial production decelerated to 4.9 per cent during April-August 2008-09 period as compared to 10 per cent in the year-ago period, it added.

Metal prices too have eased during the period, reflecting weak construction demand in the Organisation for Economic Co-operation and Development (OECD) countries and some improvement in supply, especially in China, the RBI said.

On food prices, the report said that they too have declined during the second-quarter of FY 09 on the back of improved supply prospects.

The report noted expansion in bank credit to the commercial sector during this fiscal has so far remained strong and above the RBI's policy projection of 20 per cent.

(With inputs from PTI)

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