India growth story clip dips to 7.5%, says RBI | business | Hindustan Times
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India growth story clip dips to 7.5%, says RBI

Global economic crisis has shaved the non-inflationary cruising rate, says Reserve Bank of India governor Duvvuri Subbarao. HT reports.

business Updated: Jul 18, 2012 00:27 IST
HT Correspondent

India's long-term growth potential has lost a bit of its sheen, Reserve Bank of India governor Duvvuri Subbarao said on Tuesday.

The country's "non-inflationary growth rate" -- the capacity to expand the economy without causing adverse side effects in high levels of price rise -- has fallen to 7.5%, whereas it was 8% just after the Wall Street crisis in 2008 and 8.5% earlier, he said, citing mathematical techniques used to arrive at rationally expected growth.

"Assessing India's potential growth rate, consistent with our objective of low and stable inflation, remains a challenge. In its annual report for 2009-10, the Reserve Bank had reported that the potential output of the Indian economy may have dropped from 8.5 % pre-crisis to 8% post-crisis," said Subbarao at the sixth annual statistics day conference. "The latest assessment following the standard filtering technique suggests that potential output growth may have further fallen to around 7.5%," he said.

The Reserve Bank, which is sticking to a tight monetary policy to rein in inflation, has projected a 7.3 % growth for Indian economy for 2012-13.
Subbarao also proposed a producers' price index saying that the current structure of measuring inflation does not capture the price movement of services.
"In its present structure, the Wholesale Price Index (WPI) does not capture the price movement of services,” he said.

“Also, it is a hybrid of consumer and producer price quotes,” Subbarao said. “For these reasons, it is, therefore, desirable that we move towards developing a PPI that measures the average change over time in the sale prices of domestic goods and services.”

He said sellers’ and purchasers’ prices differ due to government subsidies, sales and excise taxes, and distribution costs.

The governor said core inflation (which excludes food and fuel items) gives a better picture of price trends as it is less volatile WPI-based inflation.
“The rationale for exclusion is that the prices of food and energy tend to fluctuate sharply and such volatility from the supply side, if passed on into the general price index, makes it difficult to interpret the overall trend,” he said.