India will recover after global situation improves: RBI chief

May 14th, 2009 - 5:02 pm ICT by IANS  

Bangalore, May 14 (IANS) Reserve Bank of India (RBI) Governor D. Subbarao believes the Indian economy will recover only after the world tides over the financial crisis.
“I believe for India to recover robustly, we have to have world recovery first. But once we start recovering, it will be swift and sharp,” Subbarao told India Inc at an interactive session organised here by the Karnataka chapter of the Confederation of Indian Industry (CII) late Wednesday.

Since the growth drivers such as the entrepreneurial spirit, rising productivity and increased savings were still intact, Subbarao said the recovery would be swifter and sharper when the world recovery kick-started.

“Once the confidence is restored, the recovery will be faster. Investment in infrastructure, manufacturing and services will start taking place rapidly once recovery starts,” Subbarao told the industry captains.

According to the RBI chief, the normal functioning of the Indian financial markets, lowest inflation and comfortable foreign exchange reserves would inspire the trust and confidence of potential investors.

“Rural demand is quite robust, thanks to the Rs.700 billion (Rs.70,000 crore) farm loan waiver package, the national rural employment guarantee scheme and other anti-poverty programmes,” he said.

“With agricultural prices high, farmers are able to recover their investment and earn better. More money is flowing in rural areas, holding up rural demand,” Subbarao added.

He added that India would again emerge as a favourite investment destination of big corporations once the global economic scene improved.

India clocked an average growth of 9 percent between 2004 and 2008 on growing domestic consumption and investment. A benign global environment, easy liquidity, low interest rate and stable inflation the world over helped India sustain the high growth, the central bank head said.

“Our estimate for 2009-10 is that the GDP growth rate will be 6 percent and the wholesale price index (WPI)-based inflation four percent by March next,” Subbarao averred.

Admitting that growth moderation in the last and current fiscal was steeper than estimated earlier, the governor said exports had declined for the seven consecutive months in absolute terms and manufacturing and service sectors decelerated.

“Investment demand has declined. Uncertainty surrounding the crisis has affected business confidence. Profit margins have dented. We must also recognise that we were headed for cyclical downturn in 2008-09 after four years of high growth,” Subbarao said.

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