Hyderabad, November 27
Despite growth fundamentals being intact, India’s recovery from global financial crisis was “still fragile”, the Reserve Bank of India Governor D Subba Rao said today.
The country’s exports have declined for 12 months in a row, while the inflationary pressure was building up, he said.
The kharif output was estimated to decline by 18 per cent. This apart, there had been deceleration in non-food credit (- 4.4 percent) in the current financial year, which indicated that recovery was fragile, the RBI chief said, while making a presentation on “India and the Global Financial Crisis: Collateral Damage and Response” at the Indian School of Business (ISB) here.
However, striking an optimistic note, Rao said the country’s recovery would be “swift and sharp” once the global recovery started.
Stating that India’s financial integration with the global economy was deeper than its trade integration, he said, “We were affected (by global crisis) because we were more globally integrated than we consciously recognised,” he said.
The RBI chief said it was necessary for the government to return to fiscal consolidation and support drivers of growth like private investment and consumption.
“There are no benign options. The challenge is to minimise the pain of adjustment over a period of time….The challenges before the country are ensuring monetary and fiscal stimuli work through the system, timing and sequencing of exit strategy, returning to fiscal consolidation, supporting drivers of growth and managing policy in a globalising world,” he said.
The RBI Governor said the rural sector had helped India in arresting the fall in consumption during the period of the financial crisis. The National Rural Employment Guarantee Programme and the farm-debt waiver had ensured that there was money in the rural households.
Besides, the consumption in the country had shifted to the rural sector over the years, he said. Also, there had been no wealth loss effect in the rural areas due to the crisis. Consequently, the rural sector had been able to maintain its consumption levels even as the world plunged into a financial crisis.
Replying to questions from ISB students, Rao said the RBI was open to credit derivatives. About creation of sovereign wealth fund, he said such a fund was not relevant to India which has current account deficit foreign exchange
reserves.
