Growth slump is major worry: RBI

The economic downturn is a major policy concern but India should return to its high growth trajectory once global conditions return to normal, the Reserve Bank of India (RBI) said in its annual report on the banking sector for the year ended June 2008. The RBI said that an industrial sector slowdown could adversely affect the profitability of the corporate sector and credit risk. "The overall long-term macroeconomic outlook continues to be favourable with moderation of growth being the current policy concern," the central bank said. There were downside risks from India's increasing global integration, such as a sustained outflow of capital, financial contagion and slowing world growth, the central bank said in the report. Active liquidity management was key to the current policy stance and the use of a combination of instruments to absorb excessive pressures had helped cushion the impact of the global crisis on local markets, the RBI said. To reduce the probability of future crisis, the RBI and the Government should continue to adopt global best practices for prudential supervision and regulation. "Consequently, the role of fiscal space in promoting financial stability has once again come into prominence," the central bank said.