By IANS,
New Delhi : Containing inflation will continue to be the overriding priority of monetary policy, India’s central bank, the Reserve Bank of India (RBI), said in its Annual Report for 2007-08 released Friday.
In the report, the RBI admitted that India’s short-term economic growth prospects are facing several risks, both global and domestic.
“Global economic conditions have worsened with the growth in major advanced economies decelerating and inflation hardening,” the report said.
The global slowdown raises uncertainties about prospects of external demand for both the industry and services sectors in India, it said.
RBI said although Indian industry remains primarily domestic demand-driven, there are several sectors that are dependent on external demand.
These included gems and jewellery, textiles and engineering goods industries which may get affected by compression of external demand, the central bank said.
In respect of services, the global recession could impact the trade sector, which, in turn, could affect the performance of the transportation sector, the report said.
“Further, recession could also limit business and leisure tourism, which, in turn, could have implications for the performance of hotels,” the report said, and added: “The impact of recession on Indian ITES and BPO services, however, remains uncertain.”
While expressing the need to tackle inflation, the report also admitted that government finances were also under stress due to several factors.
These factors were increased pressures from oil, fertilisers and food subsidies, the farm loan waiver scheme and the hike in wages following the implementation of the Sixth Pay Commission recommendations.
The report, however, said despite downside risks to macroeconomic activity in the short run, the medium to long term prospects continue to remain robust.
The structural factors underpinning the growth process continue to be as robust as before. The rise in saving and investment rates and gains in productivity experienced in recent years are likely to be sustained, it said.