RBI paints a grim picture

The Reserve Bank of India has painted a grim picture of the economy with concerns over inflation looming large due to a shortfall in monsoon and rising government spending while reiterating that a rate cut cannot be a booster without prudent governance that accelerates investments. Expectations of price rise are gaining momentum and employment growth is slowing to a two year low, said RBI in its quarterly macroeconomic review. Deteriorating global economic conditions could pull down exports and add to India’s woes if global commodity prices rise in response to printing of currency in the West to revive economies. 

Stubbornly-high inflation and the spectre of government borrowings shooting past budgeted estimates will hold back Subbarao from following his peers in South Korea, China and the Philippines who cut interest rates to counter the global slowdown. While it may be true that India is also slowing, its high inflation leaves little scope to lower cost of funds that could boost demand further and make the economy more expensive.   


In its report on macroeconomic and monetary developments, which is published on the eve of the monetary policy, RBI has reported the findings of its poll among professional forecasters on the economy. According to the poll, India's GDP growth rate forecast for 2012-13 has been lowered to 6.5% from the earlier 7.2% on the back of a weak monsoon and high inflation.