Optimism about the Indian economy is warranted, although as an emerging economy it has to be wary of a number of risks, and there are signs of some slowing in credit growth, India's central bank governor said.
"There are reasonable grounds for optimism with regard to the prospects for the Indian economy and this has been globally recognised," Reserve Bank of India Governor Yaga Venugopal Reddy said in a speech delivered at Russia' central bank on Monday.
But, as an emerging market, Indian policy makers had to be guarded given global inflation pressures, persisting global imbalances, the re-pricing of risk and volatile capital flows, he said. The speech was released by the Indian central bank on Tuesday.
Reddy reiterated that the central bank expected the economy to grow 8.5 per cent in the fiscal year ending March 31, 2008, and that it wanted to contain inflation close to 5.0 per cent.
"The acceleration of growth in the real sector has been reflected in the upward shift in the growth trajectory of credit extended by commercial banks, which in the past three years has been unprecedented in the history of the Indian economy," he said.
"There has been some sign of deceleration in the recent period," he added.
Central bank data shows the annual growth in bank loans credit has moderated to 25.6 per cent in mid-June from rates around 30 per cent earlier in the year.
Reddy said Indian growth of 9.4 per cent in 2006/07 -- the fastest growth in 18 years -- reflected structural and cyclical factors, which were difficult to quantify.
"The critical task before the public policy, in general, and Reserve Bank of India, in particular, is to strengthen the structural factors in the economy but determinedly moderate the cyclical and excessively volatile elements of the economy," he said.