Concerned over the weak macro-economic indicators of the country, Reserve bank of India (RBI) governor Raghuram Rajan has said that 2 percent industrial growth in September is disappointing, but expects that the economic situation would improve in the second half of current fiscal on the back of strong agriculture growth and increasing exports of the country. The governor said that sluggish growth in industry activity was mainly due to the contraction in consumer durables and tepid growth in capital goods reflecting the ongoing downturn in both consumption and investment demand. India's economic growth has slowed to a four-year low of 4.4 percent due to various global and domestic factors. Meanwhile, the central bank has projected economic growth at 5.5 percent for current fiscal.
Terming the escalation in the CPI inflation a worrying factor for India, the RBI governor said that high retail inflation at 10.09% in September is a threat for domestic economic recovery as it has been eroding consumer and business confidence in the country. Meanwhile, Rajan said that the price situation will improve once the impact of new crop is felt on the market adding that core inflation has started showing signs of easing and its impact would be visible on overall inflation. The CPI core inflation has declined to 8.1 percent in the month of October from 8.5 percent in September. Rising inflation has also become a cause of concern for the central bank, which has been increasing repo rate over the past few months in order to trim inflation.
Assuring investors amid rising concerns over weak fundamentals of the domestic economy, the RBI governor said that there is no fundamental reason for rupee to fall again, and pegged the current account deficit (CAD) for 2013-14 at $56 billion, less than 3 percent of GDP. The RBI governor has ruled out any major threat from the external front to rupee as well as the economy. He further induced confidence by saying that even if there was no more fresh Foreign Institutional Investor (FII) inflows this year, there will no problem to finance country’s CAD. The country’s CAD had widened to a record high of $88.2 billion or 4.8 percent of the GDP in 2012-13, which was cited as the main reason for rupee depreciation, which deflated over 15% against the US dollar in current year.
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