India, Macroeconomic Situation

Reserve Bank of India

India - Macroeconomic Situation Assessment and Prospects
Indian Merchants’ Chamber Mumbai
June 19, 2012
Dr. Duvvuri Subbarao Governor Reserve Bank of India

1

India Macroeconomic Situation
Cause for Concern?

2

India - Macroeconomic Situation
Trends in Growth Rate
Long-Term Trend
10.0 9.0 8.0 7.0 6.2 Per cent 8.5 5.6 8.0 Percent 7.5 7.0 6.5 6.0 5.5 5.0 6.5 8.7 7.5 10.0 9.5 9.6

Recent Trend

9.0

6.0
5.0 4.0 3.0 2.0 1.0 0.0

3

India Growth Story
What drove India’s growth in the pre-crisis period and what explains the current moderation?

4

What is the inflation story?
Year-on-Year Inflation Rates
11

9

7 per cent

5

3

1

-2 Oct/09 Oct/10 Apr/10 Apr/11 Oct/11 Apr/12 Jan/10 Jan/11 Jan/12 Jul/10 Jul/11

WPI - Headline

WPI- Non-food Manufactured Products

5

Moderation in WPI not transmitted to CPI
Year-on-Year Inflation Rates
11

10

per cent

9

8

7

6
Jan/12 Mar/12 Feb/12 May/12 Apr/12

WPI - Headline

CPI (New)- Combined

6

What is driving Inflation?
• Food (structural) • Fiscal deficit • Demand pressures • Commodity prices + depreciation
7

What has RBI done to control inflation?

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Has RBI succeeded in controlling inflation?

9

Has RBI’s tight monetary policy hurt growth?

10

Is it the high interest rate that is inhibiting investment?
Real Weighted Average Lending Rate (Per cent)
9 8 7 6 5 4 3 2 1 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 18 16 14 12 10 8 6 4 2 0

Growth in Private Fixed Capital Formation (Right Scale)

Real Weighted Average Lending Rate (Left Scale)

Growthin Private Fixed Capital Formation (Per cent)

Real Weighted Average Lending Rate and Growth in Private Fixed Capital Formation

11

If inflation is caused by supply side pressures, is tight monetary policy an appropriate response?

12

What is required to revive growth?

13

How much has the rupee