Fiscal deficit must be reined in to boost growth: RBI

Thursday, 29 January 2004, 08:00 Hrs
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NEW DELHI: The Reserve Bank of India (RBI), the country's central bank, Wednesday said the growth prospects of Asia's third largest economy would improve further if it managed to check the spiralling fiscal deficit.

"In India, several initiatives have been taken in line with the greater openness of the economy. The fiscal deficit, however, has proved to be largely intransigent," said the RBI in its annual report on currency and finance.

"In this respect the intermediate targets of the Fiscal Responsibility and Budget Management Act will have to be achieved if fiscal policy in India is to play its fitting role in the economy's growth process," it said.

"If the fiscal drag could be eased, the macroeconomic prospects would improve further, reinforced by improved public infrastructure."

The central bank said the domestic economy was poised for a higher growth profile. The growth of 8.4 percent in the second quarter of 2003-04 places India amongst the world's fastest growing economies during the current year.

"Reflective of the growing investor confidence, growth projections for the financial year 2003-04 made by various agencies have been successively revised upward," said the RBI report.

"Importantly, the second quarter estimates show that buoyancy has spread across most sectors of the economy and is not confined only to agriculture, which still accounts for most of the rebound from the drought of last year."

According to RBI, the overall GDP growth for fiscal 2003-04 is likely to be "higher and around seven percent with a continued upward bias, unless there are unforeseen circumstances".

"The overall developments in the economy are favourable and provide the main springs for a strong revival of investment by industry," it said.

The RBI had earlier estimated the economy would expand by around six percent in the current fiscal. The projection was later upwardly revised to between 6.5 and seven percent with an upward bias on good monsoon rains.

"The inflation outlook, by and large, remains benign, though careful monitoring and management would have to continue with a view to cushioning supply shocks and better management of supply bottlenecks for individual commodities," it said.

According to the report, the money, government securities and foreign exchange markets remain stable.

"The foreign exchange reserves are at a more comfortable level than ever before and there is adequate liquidity in the system," it said.

"Large inflows from foreign institutional investors leading to broad based rally in the stock markets reflect the prevailing strong business confidence."

Source: IANS
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