RBI highlights major challenges before growth story

Noting that unemployment was another biggest challenge to make growth inclusive, RBI governor D Subbarao said there was an enormous amount of unemployment and underemployment in rural sector, though the size and nature of problem remaining unclear

Chandigarh: Reserve Bank of India (RBI) governor D Subbarao on Friday highlighted major challenges, including raising farm productivity, infrastructure deficit, unemployment, financial inclusion and governance, which needed to be addressed to move up the “growth ladder”, reports PTI.

“... for India to regain its growth momentum and indeed accelerate it further, we need to address several challenges that we need to move up the growth ladder,” he said while delivering Haksar Memorial Lecture here on Friday.

Underlining the need to step up farm production to meet shortages, he said it was necessary to launch the second green revolution and increase investment in rural infrastructure and supply chain.

“Even as its (farm sector) share may be small and declining, agriculture still accommodates 53% of labour force. Besides, agriculture has very vital supply demand linkages with other sectors of economy,” he noted.

Noting that unemployment was another biggest challenge to make growth inclusive, he said there was an enormous amount of unemployment and underemployment in rural sector, though the size and nature of problem remaining unclear.

“India's high-end IT service sector might be dazzling the world but contrary to popular perception, it employs no more than three million. So the problem of jobs is that a lot of people are out of work...” he said.

“Even as demand for skills increases, the supply side is lagging far behind. India churns out 3,50,000 engineers every year, but barely a quarter of them are employable. We have 7,000 ITIs but their curriculums are woefully outdated,” he said.

Mr Subbarao also favoured liberal labour laws and employment regulations to exploit the full job potential offered by the National Manufacturing Policy.

Presenting financial inclusion as another big challenge for the growth, he said that financial inclusion was important because it was necessary for sustaining equitable growth.

He also took banks to the task for not contributing enough towards financial inclusion. “By far the biggest factor inhibiting financial inclusion is that banks continue to see it as an obligation and not an opportunity. If banks take a slightly longer term view, they will change their perception.” 

Informing about the extent of financial exclusion, he said just about 40% of population across the country has bank accounts and this ratio is much lower in north east of the country.

The challenge of providing good governance was also cited by Mr Subbarao, saying that good governance promotes economic development.

“... we have seen vast differences across states in development outcomes from out of same mix of development policies. These differences across ... across regions arise because of difference in governance,” he said.

Emphasising on the importance of a stable macroeconomic environment, he said the fiscal deficit needs to be controlled and inflation must come down.

“The first is reduction of fiscal deficits ... The second task is to bring inflation down first to 5% and then even lower (for stable macro-economic environment)....”

The governor said the current inflationary woes are a consequence of both supply shocks and demand pressures.

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Tough task for Centre to raise funds for infra financing: RBI

RBI governor D Subbarao said investments for the infrastructure sector during 12th Plan period are projected to double to $1 trillion as compared to that in the previous plan period. This meant the annual investment in infrastructure has to increase from current level of 6% of the GDP to over 10%

Chandigarh: Noting that infrastructure deficit is a major constraint in accelerating economic growth, Reserve Bank of India (RBI) governor D Subbarao on Friday said it would be a tough task for the Centre to mobilise huge resources required for the sector during the 12th Five Year Plan, reports PTI.

Delivering the Haksar Memorial Lecture here, Mr Subbarao said investments for the infrastructure sector during 12th Plan period (2012-17) are projected to double to $1 trillion as compared to that in the previous plan period.

This meant the annual investment in infrastructure has to increase from current level of 6% of the gross domestic product (GDP) to over 10%, he said.

“Given its fiscal compulsion, the government will clearly not be able to mobilise resource of this order,” he said.

He said the final expenditure in infrastructure in 11th Plan is likely to fall short of projected investment of $500 billion.

The 12th Plan projections call for 50% of projected investment to come from the private sector and much of project implementation to happen in public-private partnership (PPP) mode.

Stating the infrastructure requires long-term finance, he said it should be funded by long-term sources like insurance and pension funds.

“Since these markets in India are still not deep enough, the burden of financing is falling on banks,” he said.

He said banks could not expand lending for infrastructure beyond a point because of exposure risks and asset-liability mismatch problems since their liabilities are largely short term.

However, he observed that development of corporate bond would go a long way in augmenting infrastructure financing.

“Both the government and RBI have taken a number of initiatives to develop corporate bond market and some further initiatives are in pipeline,” he said.

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India to see 6.9% economic growth in September quarter: Nomura

The real GDP expansion is projected to slowdown to 6.9% in the September quarter on a year-on-year basis from 7.7% growth clocked in three months ended June. According to Nomura, the lower growth would be on account of broad-based slowdown in private consumption, fixed investment and exports

New Delhi: India is expected to see a real gross domestic product (GDP) growth of 6.9% in September quarter while the “downside risk” for the economy has increased amid prolonged turbulence in the global financial markets, reports PTI.

“We expect real GDP growth to remain below potential and inflation to moderate as tight monetary policy and weaker global growth cap demand,” global financial services group Nomura has said.

The real GDP expansion is projected to slowdown to 6.9% in the September quarter on a year-on-year basis from 7.7% growth clocked in three months ended June.

According to Nomura, the lower growth would be on account of broad-based slowdown in private consumption, fixed investment and exports.

“Although we expect GDP growth to rise in 2012, the downside risk to the economy has risen, mainly due to prolonged turbulence in global financial markets,” the report noted.

Regarding price rise, the report said that headline WPI (Wholesale Price Index) is expected to remain over 9% this month and moderate to about 8% in December.

Last month, WPI stood at 9.7%.

“Our view is that the RBI (Reserve Bank of India) will stay on hold as we also expect inflationary pressures to wane and growth slowdown to broaden in coming months,” Nomura said.

RBI has hiked interest rates 13 times since March 2010 to tame demand and curb inflation.

“On the fiscal front, rising subsidies and lower revenues should result in a higher fiscal deficit of 5.5% of GDP in FY 11-12 versus a budget estimate of 4.6%,” the report noted.

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