Economic recovery work in progress: Raghuram Rajan

Mumbai: The Reserve Bank retained the growth projection for the current fiscal at 7.6 per cent, saying economic recovery is still work in progress though  outlook is gradually improving.  The central bank's survey-based indicators point to flat  capacity utilisation and new orders with corporate sales  growth declining, although lower inflation justifies some of  the compression in top lines.  In its third bi-monthly policy for the fiscal, RBI said  although overall business confidence is positive, the level of  optimism was shade lower in April-June than in the preceding  quarter. Investment, as measured by new projects, is still  weak, primarily because of persistently low capacity  utilisation. 

"In India, the economic recovery is still work in  progress... The outlook for growth is improving gradually. On an assessment of the evolving balance of risks, the  projected output growth for 2015-16 has been retained at 7.6  per cent," RBI Governor Raghuram Rajan said in the policy  statement.  RBI said rural wage growth was moderate but there are indications of incipient pressures from corporate staff costs.  "However, there are signs that consumption demand,  especially in urban areas, is picking up. Car sales for July  were strong. 

"Nominal bank credit growth is lower than previous years,  but adjusted for lower inflation as well as for lower  borrowing by oil marketing companies and increased borrowing  from commercial paper markets, credit availability seems to be  adequate for most sectors," the statement said.  On monsoon, the central bank said that after strong  rainfall in June, July has been below par, but on net, the  monsoon is near normal.  Higher reservoir levels also auger well for the prospects  of kharif output, particularly for areas that are dependent on  irrigation, it said.  Turning to the balance of inflation risks, RBI said "most  worrisome" is the sustained hardening of inflation excluding  food and fuel. Some food prices, particularly protein-rich  items like pulses and oilseeds have risen sharply.

"They will have to be carefully monitored as they tend to  be sticky and impart an upward bias to inflation and inflation  expectations. This assumes significance in view of households'  inflation expectations rising again," RBI said.  Several factors, however, could have a significant  mitigating influence, Rajan said. These include the sharp fall in crude prices since June and the likelihood of this softness persisting in view of the  global supply glut and expanding production by Iran.  Other factors which could have an impact include "welcome  increase" in planting of pulses and oilseeds and prospects of  rainfall in August and September according to some  forecasters.  Besides, the effects of the government's supply management  to "contain shocks" to food prices, especially of vegetables, alongside its decision to keep increases in minimum support  prices moderate could also have mitigating influence.