The Reserve Bank today expressed optimism that the economy will grow above the 8 per cent it had projected in the April monetary policy as the Kharif crops are expected to be better than last year's on the back of a reasonably good monsoon.
"Going by the progress of the monsoon so far, agricultural output is expected to be better than last year. Lead indicators for services activities suggest continuation of the growth momentum," the Reserve Bank said in its Macro-economic and Monetary Developments, First Quarter Review 2010-11, released on the even of its monetary policy review today.
Industrial production continues to exhibit double-digit growth in the current year, notwithstanding some moderation in May, it added. The Professional Forecasters' Survey conducted by the RBI in June, however, had placed GDP growth higher at 8.4 per cent as against 8.2 per cent reported in the previous survey.
On the growth projections of different agencies, RBI said,"all available projections of real GDP growth for 2010-11 are higher than 8 per cent. Leading indicators point to the prospect of robust growth in the coming quarters and fast closing of the output gap."
It cited the prospect of a better Kharif output than last year, buoyancy in the industrial sector, notwithstanding the moderation in May and a significant pick-up in investment demand as major factors giving a positive growth outlook.
Stronger growth in corporate earnings and higher profits, strong growth in exports, an improving business environment as per optimism expressed in different surveys, pick-up in private consumption and a potentially lower fiscal deficit due to the favourable outcome of the 3G/BWA spectrum auctions, are the other positive factors listed by the bank.
Besides, there has been a "significant acceleration in credit demand from the private sector," it said. The apex bank, however, warned that an uncertain external environment presents a major risk to growth in the near-term. Enumerating some challenges, it said sustaining high export growth would be challenging while the real appreciation of the exchange rate can also weaken external price competitiveness of the country's exports.
The central bank further said sustaining investment and private consumption demand (both of which have picked-up) would be crucial for growth "given the gradual phasing out of the fiscal stimulus and monetary exit."
Inflationary pressures, besides affecting the cost structure through demands for higher wages and increase in input costs, could also depress demand, it said.