Conformed growth and high inflation
The macro economic situation conformed signs of a turnaround for the
economy. The first quarter GDP released on 31 August 2009 had hinted at
a recovery with growth in real GDP being placed at 6.1% (up from a
level of 5.8% each in Q3 and Q4 of 2008-09). The growth in real GDP in
Q2 was 7.9%. GDP growth in the first half (H1) of 2009-10 is now placed
at 7.0%. Even though there was stagnation in the agriculture sector,
the sequential quarterly growth rate over previous quarter of macro
indicators confirms recovery of almost the entire economy and having
regard to this broad-based nature of growth, the clouds of uncertainty
have lifted. At this background, Finance Minister Shri Pranab Mukherjee
presented the ‘Mid-Year Review 2009-10' in the Parliament, today.
The rise in the prices of primary articles of consumption of the common
man observed in recent times is indeed a cause of concern, and this
needs to be attended to on an urgent basis, added by Finance minister.
Within the headline measures of WPI inflation, the food items (food
articles and manufactured food) have exhibited high inflation.
On other hand, monetary policy had remained accommodative in the wake
of the impact of the global financial crisis since the second half of
last fiscal. The continuance of the policy stance was considered
apposite in the current context thus far, with the objective of
providing for credit expansion at viable rates while preserving credit
quality so as to support the return of the economy to a steady growth
path. RBI's second quarter review of monetary policy 2009-10 (27
October 2009) expressed the dilemma of inflationary concerns calling
for an early exit from accommodative monetary policy as contrasted with
growth drivers warranting a delay in such exit.
The Mid Year Review notes that there is enough evidence to suggest that
the fiscal policy measures undertaken by the Government have worked.
There is need to observe the growth in major components for a couple of
quarters to confirm the self-sustaining nature of this recovery
process. The review raised concern for food inflation and lower growth
rate in bank credit.
The review also notes the ongoing process of global coordination
through G-20 and the need for policy support to sustain the global
recovery.