GDP to grow at 6 per cent, money supply to rise 17 per cent in 2009-10

21 April 2009

The Reserve Bank has revised GDP growth estimates for the financial year 2009-10 to 6.0 per cent, broadly in line with its earlier forecasts of 5.8 per cent growth.

The RBI targets for broad money (M3) growth, and inflation at 17 per cent and 4.0 per cent respectively, year-on-year, and year-end inflation at 3.0 per cent for FY10.

Economic activity in India slowed down 2008-09 as compared with over 9.0 per cent growth in the previous three years. RBI said growth decelerated sharply in Q3 following the failure of Lehman Brothers in mid-September 2008 and knock-on effects of the global financial crisis on the Indian economy.

Consequently, the growth rate during the first three quarters (April-December) of 2008-09 slowed down significantly to 6.9 per cent from 9.0 per cent in the corresponding period of the previous year.

RBI, had in April 2008 placed real GDP growth for 2008-09 in the range of 8.0-8.5 per cent.  As the crisis unfolded, economic prospects deteriorated rapidly globally and at home in India, the RBI revised downward its growth projection for India for 2008-09 to 7.5-8.0 per cent, and further down to 7.0 per cent with a downward bias. The downside risks have since materialised and the GDP growth for 2008-09 was projected to turn out to be in the range of 6.5 to 6.7 per cent and now below at 6.0 per cent.

RBI said private consumption and investment demand decelerated during Q3 of 2008-09 while government consumption demand registered a sharp increase, reflecting the partial payout of the Sixth Pay Commission Award and other fiscal stimulus measures. As a result, the share of government consumption demand in GDP increased significantly.  Deceleration in net exports growth in the successive quarters of 2008-09 had an adverse impact on the  overall GDP growth, RBI added.