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RBI foresees 6.5 per growth

The Reserve Bank of India says the country should be in a position to achieve an overall gross domestic product growth of about 6.5 per cent in the current year of 1998-99.

In its annual report for the year 1997-98, the central bank said that there were signs of recovery in both industrial and agricultural production followed by the expectations of good crop output induced by favourable rainfall in majority meteorological areas of the country.

The industry should show a higher rate of growth than in the previous year in view of the expected stimulus from the rural demand and the planned initiatives in infrastructure development.

Recent data on the index of industrial production up to June this year showed an improvement of 5.4 per cent over the position obtained in the corresponding period of the preceding year (3.7 per cent).

The services sector has been growing at 8 to 9 per cent in the medium term and its share in real GDP is estimated at 48.6 per cent in 1997-98.

There was no reason why agriculture and allied activities would not record a growth of over 3 per cent in the current year, the RBI said.

The RBI placed the real GDP growth in 1997-98 at about 5.1 per cent which is lower than 7.5 per cent growth in the previous year. The lower growth in 1997-98 has largely resulted from the decline in the output of agriculture and allied activities and deceleration in industrial output.

Expressing confidence in the capability and potential of the Indian economy to steer away any kind of crisis that engulfed some important south-east Asian countries, the RBI annual report said that the fiscal position of the Centre as well as the state governments continued to be under considerable stress with sharp widening of revenue account deficit and reduction in tax receipts earnings.

In 1998-99, the revenue deficit is estimated at 3 per cent of GDP, suggesting continued constraints on the feasibility of fiscal correction.

This was mainly due to the pay rises following the Fifth Pay Commission's recommendations, the RBI observed. In this context, the RBI emphasised that there was an urgent need for the government to focus on issues such as reduction of subsidies, expenditure prioritisation and widening of the tax base.

On industrial revival, it said the key lies in augmenting investment in economic infrastructure like power, roads, ports and telecommunications which is estimated to be around Rs 4,500 billion.

It is necessary to develop innovative instruments relating to both equity and debt markets for wider investor participation as also evolve approaches to have a transparent regulatory framework so as to bring about efficient mechanisms for risk allocation between the service providers and various entities in the process.

Expressing concern over the price situation, the RBI said that the rising cost of essential commodities was largely owing to shortage of supplies of primary articles like fruits, vegetables, oilseeds and cereals.

The annual inflation rate has been a little over 8 per cent on a point-to-point basis as of August 1 as against 3.86 per cent in the comparable period of last year.

On external sector, the RBI said that the international economic and financial situation continued to be uncertain and constituted a major policy challenge for the developing nations particularly after the south-east Asian crisis.

Under this circumstances, India's export growth in the current year largely hinges not only on macro policies but also on micro policies that ease internal and industry specific constraints to the growth.

UNI