RBI sees risks to macro stability - Hindustan Times
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RBI sees risks to macro stability

Reuters | By, Mumbai
Dec 28, 2012 10:56 PM IST

Risks to India's macro-economic stability have increased on the back of an economic slowdown, high inflation, and ballooning fiscal and current account deficits, the Reserve Bank of India said in a report on Friday.

Risks to India's macro-economic stability have increased on the back of an economic slowdown, high inflation, and ballooning fiscal and current account deficits, the Reserve Bank of India said in a report on Friday.

A slowdown in both domestic savings and investment demand, as well as a moderation in consumption have also emerged as threats to macroeconomic stability, the central bank said in its financial stability report (FSR).

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"The overall macro-economic risks in the Indian financial system seem to have increased since the publication of the previous FSR in June 2012," the RBI wrote in the report.

India's economy is expected to grow 5.7-5.9% for the fiscal year ending in March, the slowest since 2002/03. Growth prospects also remain below the recent trend of double-digits, with Prime Minister Manmohan Singh this week calling the five-year government plan for 8% expansion "ambitious."

The current account deficit also remains a concern as Asia's third largest economy has seen exports fall due to weak demand in key markets like the United States and Europe, while imports of gold and oil have remained high.

On the fiscal side, the government could see a shortfall in tax and non-tax revenue because of the economic slowdown, and is at risk of overshooting its expenditure targets, the RBI said.

The RBI added data from banks that showed a significant portion of foreign exchange exposures at companies remained unhedged, posing another risk to macro-economic stability.

The RBI also said profitability at banks may come under pressure in coming quarters with gross non-performing assets (NPA) continuing to tread above the credit growth and on the back of rising slippages.

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