RBI's Annual Monetary Policy Statement for the Year 2013-14
- 3rd May 2013
II. Domestic Outlook and Projections
25. For GDP growth during 2012-13, the CSO’s advance estimate of 5.0 per cent is lower than the Reserve Bank’s baseline projection of 5.5 per cent set out in the Third Quarter Review (TQR) of January 2013, reflecting slower than expected growth in both industry and services.
26. During 2013-14, economic activity is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year. Conditional upon a normal monsoon, agricultural growth could return to trend levels. The outlook for industrial activity remains subdued, with the pipeline of new investment drying up and existing projects stalled by bottlenecks and implementation gaps. With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7 per cent
27. By March 2013, WPI inflation at 6.0 per cent turned out to be lower than the Reserve Bank’s indicative projection of 6.8 per cent, mainly due to a sharp deceleration in non-food manufactured products inflation in the second half of the year. The global inflation outlook for the current year appears more benign compared to last year on expectations of some softening of crude oil and food prices. Accordingly, imported inflation is likely to be lower provided the exchange rate remains broadly stable. Indicators of corporate performance, industrial outlook and PMIs are pointing to a declining pricing power. On the other hand, food inflation is likely to be a source of upside pressure because of persisting supply imbalances. Also, the timing and magnitude of administered price revisions, particularly of electricity and coal, will impact the evolution of the trajectory of inflation in 2013-14.
28. Keeping in view the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon, WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14, with some edging down in the first half on account of past policy actions, although there could be some increase in the second half, largely reflecting base effects
29. It is critical to consolidate and build upon the recent gains in containing inflation. Accordingly, the Reserve Bank will endeavour to condition the evolution of inflation to a level of 5.0 per cent by March 2014, using all instruments at its command.
30. It is important to re-emphasise that although the most recent episode of high and persistent inflation played out over the past three years, during the 2000s as a whole, inflation averaged around 5.4 and 5.8 per cent, in terms of WPI and CPI, respectively, down from its earlier trend rate of about 7.5 per cent. Given this record and the empirical evidence on the threshold level of inflation that is conducive for sustained growth, the objective is to contain headline WPI inflation at around 5.0 per cent in the short-term, and 3.0 per cent over the medium-term, consistent with India’s broader integration into the global economy.
31. Consistent with the above growth projections and the Reserve Bank’s inflation tolerance threshold, M3 growth for 2013-14 is projected at 13.0 per cent for policy purposes. Consequently, aggregate deposits of SCBs are projected to grow by 14.0 per cent. Keeping in view the resource requirements of the private sector, the growth in non-food credit of SCBs is projected at 15.0 per cent. As always, these numbers are indicative projections and not targets. The conduct of monetary policy would be guided by the evolution of monetary aggregates along these indicative trajectories.
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