India's economic growth to fall below trend rate in 2011-12: RBI
24 Oct 2011
Economic growth in India is likely to moderate and fall below the trend rate in 2011-12, with the decline already visible in industrial activity and some service sector industries. However, prospects in the agriculture sector are encouraging with the likelihood of a record kharif crop, the Reserve Bank of India (RBI) said in its second quarter economic review.
With the increasing linkage between domestic industrial growth and global industrial cycle, some further moderation is likely in the period ahead, given the weak global factors, RBI said.
High inflation, RBI said, is likely to persist over the next couple of months before moderating as the rupee fall offsets the benefits of falling global commodity prices.
Food inflation is likely to stay high due to demand-supply mismatches in non-cereals and increases in support prices. And, with real wage inflation extending into the next quarter, the challenges of domestic inflation remains significant, RBI said.
Along with this, there has been a softening of investment demand as a result of a combination of factors like monetary tightening, hindrances to project execution, deteriorating business confidence and slowing of global economy, RBI noted.
RBI noted that capacity constraints seemed to be easing in some manufacturing segments, especially cement, fertilisers and steel. Construction activity has slowed and leading indicators suggest that going forward, service sector growth may also slightly weaken, the review noted.
