Growth drive to continue this fiscal: RBI

Written by Agencies | Mumbai, August 30: | Updated: Aug 30 2007, 23:17pm hrs
The country's economic growth momentum is expected to continue at a strong pace this fiscal but inflation could emerge as the main downside risk, the Reserve Bank of India (RBI) said.

Steady increase in gross domestic saving and investment rates, consumption demand, addition of new capacity as well as more intensive and efficient utilisation and capitalisation of existing capacity are expected to support growth in 2007-08, the apex bank said in its annual report for 2006-07.

The central bank had earlier in its monetary policy pegged the GDP growth at 8.5 per cent this fiscal. India is the world's second-fastest growing major economy after China and recorded an average of 8.6 per cent growth in the last four financial years ending 2006-07. The country posted a record 9.4 per cent growth in 2007-08.

The annual report, released today, said a higher growth in demand is placing greater pressure for accelerated expansion of supply of infrastructure, despite some efforts to remove supply constraints in the sector. Capacity utilization was especially stretched in sectors such as electricity generation, roads, ports and major airports, the RBI said.

The report said supply constraints from shortfalls in agricultural performance and physical and social infrastructure could constrain future growth while also exerting inflationary pressures.

Though RBI pointed to inflation as likely to emerge as the key downside risk to the evolving macroeconomic outlook, it said "the recent gains in bringing down inflation and in stabilising inflation expectations should support the current expansionary phase of the growth cycle".