RBI governor sees signs of recovery in some sectors


Bangalore: Reserve Bank of India (RBI) governor D. Subbarao Thursday said some sectors of the economy were showing signs of recovery even as the pace of decline in certain areas has started to moderate.

Support TwoCircles

“There are incipient signs of revival of business confidence. But these signs may have to be more widespread across indicators and more durable to draw any clear inference on the time and pace of recovery,” Subbarao told reporters at the end of his first visit to the city after taking over as the central bank head Sep 5, 2008.

Maintaining that India’s turn around would be sharper and swifter once the global economy began to recover, Subbarao said the timing and pace of recovery depended on how the initial signs would spread across indicators and how more durable they would be.

“The Indian economic recovery will be swift and sharp because of our strong fundamentals and the untapped growth potential. Our overreaching policy objective is to restore the economy to a high growth path consistent with price and financial stability,” Subbarao asserted.

The balance of assessment at this stage continues to support the RBI’s earlier assessment of real GDP (gross domestic product) growth of about six percent for 2009-10, as envisaged in its annual policy of April 21 for this fiscal.

“Once the crisis is behind us, managing inflationary expectations and unwinding the current expansionary policies will be our task and challenge,” the governor reiterated.

Elaborating on the signs of India recovery, Subbarao said the most quantifiable indicator was the global bank ABN Amro’s purchasing managers’ index (PMI), which was 53 points for April, an increase of four percent over March.

“I am told the number above 50 points is a positive indicator. We are one of the few countries where the PMI has gone up above 50. Even in China, it is lower than 50 points, which is a negative indicator. To be above 50 points is a first positive indicator for us,” Subbarao pointed out.

Though the Index for Industrial Production (IIP) for March and the whole of 2008-09 was in the negative territory, the numbers for certain sectors such as FMCG (fast moving consumer goods) in March and capital goods in February were looking up. Cement and steel sectors are also doing reasonably well.

Similarly, in two-wheelers and commercial vehicles segments, there are incipient signs of recovery. Coverage of sowing under the rabi crop improved by two million hectares as against the fall of 2.4 million hectares under the kharif period.

The increase in MSP (minimum support price) for the rabi crop has pushed the rural consumption demand.

Transport of cargo, port traffic and railway freight revenue are showing signs of improvement.

“The provisional results of 954 companies indicate the growth of profit after tax in the fourth quarter (January-March) of fiscal 2008-09 was minus 2.1 percent as against minus 53.4 percent in the third quarter (October-December). These are some of the positive signs,” Subbarao averred.

As a word of caution, the governor reiterated that the IIP numbers were still negative and the rural consumption demand was holding up.

“In the next few months, we are hoping and expecting that the private sector demand and investment will pick up. We have to also see how the south-west monsoon fares and what will be the crop prospects,” Subbarao added.