India’s Economic Growth Rate

India's economic growth has slumped to 7.3 percent in the first half of the current fiscal, substantially below the budgetary estimate. The Gross Domestic Product (GDP) growth declined to 7.7 percent in the first quarter and it slumped further to 6.9 percent in July-September period. The economic growth was likely to be better in the second half of the current financial year. It is hoped that the country will be recovering some of the loss in our growth momentum and may end the year over 7.5 percent." The finance minister said the government was not in a position to boost growth through stimulus as it did during the global financial crisis in 2008-09.
Inflation Rate
Inflation has remained stubbornly high, near double digit, for the last two years despite an aggressive monetary tightening by the Reserve Bank of India (RBI) and claims of a series of fiscal measures by the government. Headline inflation based on the wholesale price index was recorded at 9.73 percent in October. However, food inflation has moderated in the recent week. It was recorded at 8 percent for the week ended Nov 19, according to the latest official figures.
Food inflation dropped to a four-month low of 8 per cent as on November 19, reflecting fall in prices of essential items like onions, potatoes and wheat giving relief to common man, while rates for rice and vegetables increased at a moderate pace.
Decline in food inflation may also give respite to the government which is facing heat from the Opposition on various issues, including the price rise. This is lowest since July 16 when it was 7.16 per cent.
The RBI raised the repo rate by 25 basis points to 8.50 per cent and the reverse repo moved up by a similar percentage to 7.50 per cent in its last policy review in October. Repo is the short-term rate at which the RBI lends to banks, while reverse repo is the rate at which it gets funds from banks.
The central bank has hiked policy rates five times this fiscal. In the last one-and-a-half months alone, it has raised the key rate (repo) by 50 basis points.
Foreign Trade
India's exports grew by just 10.8 per cent to $19.8 billion in October, the lowest in the past two years, mainly due to the declining demand in the US and Europe. The growth rate has been the lowest since October, 2009, when it contracted by 6.6 per cent.
According to the Commerce Ministry data, imports grew at a faster rate of 21.7 per cent to $39.5 billion leaving a trade deficit of $19.6 billion, the highest ever in any month in the last four years, which is also due to expensive crude oils and vegetable oils.
From a peak of 82 per cent in July, export growth has slipped to 44.25 per cent in August, 36.36 per cent in September and 10.8 per cent in October.
In October, oil imports grew by 20.73 per cent to $10 billion, whereas the non-oil imports rose by 22 per cent to $29.4 billion over the year-ago period.
But, for the cumulative April-October period, exports aggregated to $179.7 billion showing a handsome growth of 45.9 per cent, thanks to sterling trend witnessed in the previous months of the current fiscal.

Credit and Monetary Policy Still Influenced by Effects of Recession

Nothing new happened on 27 October. The script of the Credit and Monetary Policy announced by Reserve Bank of India (RBI) Governor D. Subbarao was written by the RBI on 26 October itself during the quarterly review of Indian economy. Although it is being said for some time that India has now recovered from the shocks of economic recession, the RBI believes that it is still time to take steps cautiously.

CRR, Repo and Reserve Rates Unchanged
No change was, therefore, made in most of the rates. Neither was any change made in the bank rates, nor in Repo Rate, nor in Reverse Repo Rate, or in the Cash Reserve Ratio (CRR).

Obviously the RBI wants that steps that were taken during recession for relief to industries should continue. They should continue to get credit at lower rates.

Danger of Inflation
One thing became clear from the 26 October report that the RBI perceives the danger of inflation, in spite of the fact that the inflation rate was below zero until a few days ago, and is still quite low. But the RBI feels that it could go up in the coming days.

For that, by increasing the Prime Lending Rate (PLR) by one percent, the bank had already indicated that it does not want any more monetary expansion at the moment.

Common Man's Concern
However, the reason for the common man's concern is not this figure of inflation, but the inflation in food commodity prices, for which the RBI is also watching the Rabi (winter) crop like everybody else. Apart from price rise, the bank sees another danger in real estate business. It feels companies engaged in this trade could get into trouble, and has made provisions for disbursement of loans to housing companies more stringent.

One problem continues, which dashes the hopes of many. The kind of scene witnessed in the stock market after the announcement of monetary policy is the result of such sense of hopelessness of several trades.

While banking companies are troubled by some limitation on their business possibilities, housing companies are unhappy that they would not be able to get loans easily now. And when housing is jolted, it has to impact on steel and cement. If crops are good, everybody would recover from these shocks. And then, the economy would also be prepared for a progressive policy rather than the monetary policy for recession.