This is the first time that the RBI is admitting that the GDP forecast is likely to be lower than the targeted growth rate of 6.1 per cent set at the beginning of the fiscal.

In the Report on Currency and Finance released here today, the RBI has said that the centre's financial position worsened during April-October '98 with a sharp increase in revenue expenditure at 28.5 per per cent (11.7 per cent). Aggregate expenditure was higher by 29 per cent (16.6 per cent), up also from the 1998-99 budgetary estimates of 13.9 per cent. The report observes that the consolidated finances of state governments have also deterioratedduring the period.

In its assessment for 1998-99, the Reserve Bank has also said that the increase in prices of primary articles and the rate of inflation "increased the uncertainty about output growth", and voiced concern that growth in money supply remained high despite substantial hikes in the cash reserve ratio and short-term interest rates.

"The increase in prices of primary commodities and the rate of inflation increased uncertainty about output growth and the high growth of money supply are matters of serious concern," the report says.

The central bank has attributed the impending slippage in economic growth to significantly lower industrial growth at 3.6 per cent at end-October, 1998, compared to the 6.2 per cent growth reported in the corresponding period of the last fiscal.

"Up to end-October 1998, industrial growth turned out to be significantly lower at 3.6 per cent, compared to the 6.2 per cent in the corresponding period of last year. The slow growth in industry has clouded the prospectof achieving a growth of 6 per cent, which was visualised at the time of the mid-term review of credit policy in October 98", says the Reserve Bank.

The manufacturing sector registered a growth rate of only 3.8 per cent (6.2 per cent) during April-October '98, "despite a strong showing by the electricity generation group". The capital goods sector recorded a higher growth of 10.3 per cent (7.9 per cent) during the period, but the basic and consumer goods sectors registered decelerated growth. On the agricultural front, the Reserve Bank observes that latest indications show that due to natural causes, the kharif crop may not yield as much output as originally expected.

Pointing that external sector development, particularly in respect of trade, continues to remain a matter of concern. The report has pointed out that against this background it has become necessary to pursue policies that encourage growth along with external stability and further enhance the competitiveness of the economy.

"For this, allround economic reforms and productivity improvements have to be pursued in a time sequenced and balanced manner so that macro-economic and structural policies are mutually suportive", the RBI report concludes.

Reserve Bank's Worries