Tough Time Ahead for Indian Economy: RBI

Monsoon

One of the major reasons behind the decelerating economic growth is the unsatisfactory progress of monsoon which is likely to result in a contraction in food grains output during 2012-13. The cumulative rainfall up to August 16, 2012 showed a 16 percent decrease from the common trend. The Reserve Bank’s production weighted rainfall index (PRN) has showed an even higher deficit of 21 percent.

Though this year the drought conditions in parts of country are marginally less severe compared to the 2009 drought, the monsoon has been unsatisfactory to a degree that has dampened the prospects for agriculture during 2012-13. During 2009-10, Rabi crop production had reached record levels, while the Rabi prospects this year remain uncertain and would depend crucially on September rains that will determine the soil moisture content and the reservoir levels.

Government finances

The report said that the budgetary targets are at risk and on receipts side, shortfall in indirect tax revenue is possible; all if the growth is remaining slow.

Meanwhile with decline in corporate earnings, non-tax revenues from the earnings of public sector units (PSUs) could also fall short of the target. It would be hard to meet the divestment target in current market conditions. Moreover, overshooting expenditure arising from under-provision of petroleum subsidies is most likely to put fiscal position under pressure.