India’s potential growth rate has come down: RBI Governor

Mumbai: A day after keeping the key policy rates steady, the central bank Tuesday said India’s potential of maintaining a high economic growth has come down.

“Potential growth rate of the economy has come down,” said D. Subbarao ,Reserve Bank of India (RBI) Governor at industry event here.

RBI’s comment came in the backdrop of a sharp drop in the economic growth, especially in industrial production.

Plus, India’s economic growth slumped to nine-year low of 5.3 percent in the quarter ended March 31. Growth in gross domestic product fell to 6.5 percent in 2011-12, as compared to 8.4 percent in the previous year. Despite growing pressure from the industry for rate cuts, the RBI in its mid-quarter monetary policy review announced Monday kept key policy rates unchanged.

Addressing 104th annual general meeting of Indian Merchants’ Chamber, Subbarao pointed out that rate of gross fixed capital formation has declined to less than half of the more than 15 percent growth registered during the pre-global economic crisis period of 2008-09.

On other hand, he said large fiscal deficit, growing supply side constraints, persistent inflation and adverse external environment dampening domestic sentiments were also putting pressure on the potential of economic growth.

Subbarao said the government must cut spending to bring more fiscal discipline.

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