Mumbai: India''s economy
is not insulated against risks from global developments, inflationary pressures
and volatility in global financial markets, the Reserve Bank of India (RBI) governor
Y V Reddy said. Reddy
said increased leveraging of overseas financial assets has enhanced the Indian
economy''s vulnerability to global risks but large changes in liquidity conditions
were obscuring the assessment of risks, he pointed out. "Risks
from global developments continue to persist, especially in the form of inflationary
pressures, re-pricing of risks by financial markets and the possibility of a downturn
in some of the asset classes,'''' Reddy said in a speech delivered in Washington. "Given
the flux associated with both the financial markets and the monetary policy settings
globally, India cannot be immune to these developments," he said in the speech
made available on the RBI''s website. "Contextually,
we in the Reserve Bank are, therefore, maintaining enhanced vigilance to be able
to respond appropriately to the prevailing heightened uncertainties in global
financial as well as monetary conditions," he said. Reddy
said there were many challenges facing the economy in the medium term, which include
improving farm productivity, augmenting infrastructure and a shortage of skilled
manpower. "The
recent upward trend in the global prices of major food items have significant
implications for the domestic agricultural sector and overall macroeconomic and
financial stability.'''' But
short-term prospects were by and large benign despite global uncertainties, he
said. The RBI
expects the economy to grow by 8.5 per cent in the current fiscal year ending
March 2008, lower than growth of 9.4 per cent in 2006-07. Reddy
declined to comment directly on the outlook for the central bank''s policy. He
also avoided judgment on the government''s proposed curbs on foreign purchases
of the country''s stocks, which caused a sell-off in equities yesterday. "We
have obviously some pressure in terms of growth in the monetary indicators,''''
he said. "We will have to review'''' the data when central bank officials meet
later this month, he said.
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