There has been much anxiety amongst economic analysts lately over fluctuations in industrial growth, the appreciating rupee and slowdown in exports. But it has evidently done little to dent the Reserve Bank?s broad optimism on the Indian economy?s immediate future. While it gingerly refuses to revise its 8.5% GDP growth projection for 2007-08, it is willing to walk the edge in betting that there are indications of an acceleration in the underlying momentum of the economy that could lift it above the projected trajectory. The main basis of this confidence is the further broadening of economic activity that it has observed, with an agricultural pick up defying gloomy predictions of a tardy supply response to rising prices. A primary sector revival would indeed be a cause for much cheer. However, the RBI?s outlook for the secondary and tertiary sectors is not without its cautions. Noting that industrial growth has been led by only a few segments, such as capital goods, it is sceptical of the laggards doing much better and concerned about the impact of rising input costs. In its final reckoning, taking both domestic and global trends into account, a marginal moderation in overall industrial activity is a possibility not to be dismissed. While it views the contractions in some quarters like consumer durables and transport equipment as a reflection of mere transitory factors, it also acknowledges the slump in credit offtake in such markets as having had a bearing on the same. For instance, while growth of credit to real estate has decelerated over the first five months of the year, housing loans have fallen by a third and consumer durable loans have collapsed to around one-seventh the levels at the end of last year. On the services sector, too, the central bank tempers its optimism with the possibility of a moderation of the current momentum.
Yet, on the whole, the good news is that the investment cycle has sustained itself well enough for an acceleration of economic growth. If this happens, the RBI would not like to be caught offguard. What is relevant to its task of keeping economic conditions stable, in this context, is the risk of the economy overheating. Here, it points out that average inflation on an annualised basis in the wholesale markets is still higher than the figure last year. So the heat is not entirely off.
