Indian economy to resume sharply: Subbarao

The Governor of Reserve Bank of India (RBI) D Subbarao seemed quite confident about Indian economy as he said that India would recover sharply and swiftly when the world economy kick-started the recovery.

Expressing hope for a better Indian future, Subbarao said, “I believe for India to recover robustly, we have to have world recovery first. But once we start recovering, it will be swift and sharp.”

He was interacting to Karnataka chapter of the Confederation of Indian Industry (CII) late Wednesday in Bangalore.

‘India is not a demanding country, so once the confidence is restored, the recovery will be faster. Investment in infrastructure, manufacturing and services will start taking place rapidly once recovery starts,’ said Subbarao to India Inc.

However, Subbarao admitted that the money flow mechanism had weakened in India, but not collapsed entirely as he said it was still working.

He was referring to the reduction in the effective lending rate. Since last October, the apex bank has announced several rounds of cut in Bank’s Benchmark Prime Lending Rate (BPLR), Repo Rate, Reverse Repo Rate, Cash Reserve Ratio and Statuary Lending Rate (SLR) to ensure the liquidity flow in the market.

Subbarao still hopes that despite several rounds of cut, there is still sufficient scope for another reduction in lending rates.

Commenting on three-stimulus package that UPA government had announced last fiscal, he said that the stimulus packages have helped a lot to Indian economy.

“Rural demand is quite robust, thanks to the Rs.700 billion (Rs.70,000 crore) farm loan waiver package, the national rural employment guarantee scheme and other anti-poverty programmes,” he said by adding that now farmers are able to recover their investment and earn better because of higher agricultural prices.

“More money is flowing in rural areas, holding up rural demand,” he said.

India that sustained a healthy growth rate of over 9% for consecutive four years (2004-08), suddenly slipped to 7.1% in the last fiscal in the backdrop of weakening global demands and worsening recession.

This fiscal, as Subbarao hopes, India can be able to maintain six per cent of gross domestic product (GDP) rate as global recession still seems long lasting.

“Our estimate for 2009-10 is that the GDP growth rate will be six percent and the wholesale price index (WPI)-based inflation four percent by March next,” Subbarao stated.