The slowdown effect in India may be sharper and harsher than the earlier estimation in the backdrop of worsening global meltdown while the depreciating inflation is a good news for India that is providing room for another rate cut, said Reserve Bank of India in its ‘Macro Economic and Monetary Developments Third Quarter Review 2008-09’.
After showing strong growth rate till second quarter of this fiscal, the Indian economy is slowing down since then due to sharp fall in the industrial growth. The service sector is also slowing down while the agricultural outlook became healthier, added RBI.
The slowdown in India ran on the reverse track from reality sector to financial sector as against the developed economies where the slowdown spread from financial sector to reality sector, described RBI in the review.
The economy in the economic strong countries like US, UK, European Union (EU) and Japan have deteriorating sharply since September 2008, and are affecting the developing countries, including India and China too. The effect is now exhibiting especially on reality and service sector, said RBI.
First it affected the consumption growth and then gradually widened the trade deficit, added RBI.
The lack of liquidity in the system enforced the central bank to inject adequate money, thus RBI took several measures to eliminate the drought of Indian and foreign currencies in the system, the apex bank said.
On the front of inflation, India has experienced a feel-good factor as it had reached to 12.91% in second quarter of this current fiscal has now cooled to 5.6% on January 10, 2009, RBI review said.
However, the price of primary articles, including non-food article group, remained high according to Wholesale price index (WPI) on account of recent global slowdown but the positive sign was that the continuous slump in crude oil prices and food prices in the international market helped India to deflate inflation. The massive sowing of ‘Rabi’ crops is also a healthy sign for Indian economy, said RBI.
Several factors, including expected increase in consumption, debt waiver for farmers and implementation of Sixth Pay Commission's recommendations, will work positive for Indian economy, RBI added.
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