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Economic review: Prices need to be curbed for RBI to push growth

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RBI has maintained a hawkish policy stance and raised a key interest rate by 0.25 pct. RBI has maintained a hawkish policy stance and raised a key interest rate by 0.25 pct.
SummaryThe government in its mid-year review of economy said prices need to be curbed.

Admitting that inflation is biggest threat to growth, the government in its mid-year review of economy today said prices need to be curbed so that the Reserve Bank of India (RBI) can push growth.

"The outlook on growth is also threatened by certain downside risks, the biggest being the high rate of inflation, which further dents the ability of RBI to extend monetary policy support to growth revival," said the mid-year review that was presented in Parliament.

The Reserve Bank of India (RBI) has maintained a hawkish policy stance and raised a key interest rate by 0.25 per cent in its latest monetary policy review with the aim of taming inflation.

The ministry underlined the need to contain wholesale price inflation at below 6 per cent "so that necessary leeway is available to the RBI to support economic recovery."

Inflation, fell in January to an eight-month low of 5.05 per cent. The RBI is scheduled to announce its next policy in April.

The review is a bit dated, as it is based on the economy's performance till September. Generally tabled in Parliament during December.

The review said revival of growth in the industrial sector, particularly manufacturing, was essential for raising the growth rate and sustaining it over the medium term.

"It (growth in manufacturing sector) is sine qua non for raising the growth rate and sustaining it over the medium term. Continuing the recent initiatives of the government to speed up project implementation and boost investment will help."

After September, industrial production declined for three consecutive months. It rose 2.7 per cent in September and then declined 1.6 per cent in October, 1.3 per cent in November and 0.6 per cent in December.

Manufacturing, the biggest segment of the industry, contracted 2.7 per cent in October, 1.7 per cent in November and 1.6 per cent in December.

Referring to recent structural reforms, it said,"...the recent structural reforms undertaken by the government of India are likely to place the economy on a higher potential growth path, from where acceleration to a higher growth trajectory can occur reasonably quickly, once global recovery gains momentum and cyclical upturn strengthens."

India's economic growth slipped a decade low of 4.5 per cent in 2012-13. The country's GDP is estimated to expand 4.9 per cent in the current financial year.

Highlighting the need to curtail the fiscal deficit, the document said it should be done while

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