He also cautioned that the euro zone crisis and the consequent torpor in global demand could adversely impact India's exports and, to some extent, the country's economic growth.
Amid the gloom, industrial production data for October indicating a 16-month high of 8.2% annual growth on the back of robust performance in manufacturing and capital goods contrasted with negative growth reported in five out of the first seven months of the fiscal brought some cheer.
While finance minister Chidambaram said the data indicated green shoots in the economy, many analysts saw it as a sign that the economy has finally turned the corner.
The surge in the index of industrial production (IIP) was, however, enabled by the Diwali spending spree and a low base the index had contracted by 5% in October 2011 and, hence, many discounted it as an optical illusion and drew attention to the high volatility of the IIP data.
However, Rajan said, We should not be overly influenced by one set of numbers, especially due to the base effect. We should take it as part of the pattern. Hopefully, economic growth is stabilising. Certainly every move that government is trying to make (will) help to strengthen growth.
He added, Clearly, India will be influenced by growth constraints in Europe. After all, our exports are part of production. So, if exports are declining, as they have been recently, it is obviously going to impact the economy. He also said that in order to drive the economy, there was a need to tap into domestic sources of growth.
Indias exports declined an annual 4.17% in November, the seventh straight month of negative growth, owing to weak demand in the traditional markets of US and Europe. The steady contraction in exports coupled with the import bill inflated to an extent by the weak rupee even in a slowing economy has raised concerns about the current account deficit, which stood at 4.3% of GDP in 2011-12 and is officially forecast to be 3.5% in the current fiscal.