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Non-inflationary Growth Down At 7.5%: Subbarao

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[India's non-inflationary growth rate has fallen to around 7.5 per cent from 8 per cent in the post-Lehman crisis period, RBI chief Duvvuri Subbarao said on 17 July. He was speaking at the RBI's sixth statistics day conference. Assessing India's potential growth rate consistent with the objective of low and stable inflation remains a challenge, Subbarao said in a speech at the Reserve Bank of India's sixth statistics day conference. Before the 2008 global financial crisis, the country's potential output, defined as growth without fuelling inflation pressures, was 8.5 percent. "An accurate estimate of potential output is critically important for central banks to assess demand conditions and the output gap. Reliability and timeliness are critical," he said. The RBI projects the economy to grow at 7.3 per cent in 2012-13. The RBI governor also said core inflation gives a better sense of future price trends since it is less volatile. "If one takes a longer series of over three years, there is some evidence that core inflation does have statistically significant predictive power," Subbarao said in the speech. He also said headline inflation will definitely have a larger momentum than core inflation. India's headline inflation slowed to its lowest level in five months in June helped by a moderation in fuel prices, adding to pressure from business leaders for a cut both in interest rates and fuel subsidies to help revive the lacklustre economy. India's industrial output grew more than expected in May at 2.4 per cent from a year earlier, while headline inflation slowed to its lowest level in five months in June to 7.25 percent. While a lower inflation number added to pressure from business leaders to cut policy rates, a faltering monsoon -- key to volatile food prices -- tempered such expectations with the government warning inflation could accelerate without more rain. Asia's third-largest economy posted its slowest growth in nine years at 5.3 percent in the March quarter, fuelling concerns of a sharp slowdown in the current fiscal year that began in April. Subbarao added that the central bank should focus on price changes at the industry level or the producer price index, which reflects the actual price excluding government subsidies, sales and excise taxes. There has been reported divergence between the government and the RBI, which has been focusing mainly on controlling inflation. Union ministers have been vocal about the need for a soft interest rate regime. In its bid to rein in inflation, the Reserve Bank hiked key policy rates 13 times, totalling 350 basis points, between March 2010 and October 2011. Besides, the RBI has called for the government to set its house in order and get fiscal deficit under control. Subbarao also said in the last four years, RBI has raised some issues, including the independence of the central bank and the need for the government to set exemplary corporate governance standards, as it feels they need to be debated. He said while discharging its duties, the central bank also needs to be sensitive and accountable. "We are unelected...but we take decisions that affect the entire country. So, we must be very sensitive to rendering accountability for our actions and the results of those actions," he said. In his speech, he also said he has doubts over the age-old model code followed by civil servants wherein they don the mantle of advising the decision-makers and then are expected to follow the decision taken by the political leaders, even if it went against their wishes. (Agencies)