RBI sticks to its FY10 GDP forecast

Assuming a modest decline in agricultural production and a faster recovery in industrial production, the baseline projection for GDP growth for 2009-10 is placed at 6.0% with an upside bias. This is unchanged from the estimates made by the RBI in the First Quarter Review of July 2009. During the first quarter of 2009-10, real GDP recorded a growth of 6.1%, lower than the growth of 7.8% in the corresponding quarter of 2008-09, but marginally higher than the 5.8% growth in the second half of 2008-09.

The south-west monsoon rainfall this year has been the weakest since 1972 affecting both yield and acreage of agricultural crops. This will impact Kharif production and the performance of agricultural production during the Rabi season will be critical for supply management, the RBI said in a statement. On the whole, agricultural production in 2009-10 is expected to be lower than in last year, it added.

While external demand has continued to contract, large fiscal and monetary stimulus measures have bolstered domestic consumption and helped the recovery in the industrial sector, the RBI said. The prospects of the industrial sector have become more promising than they were at the time of the First Quarter Review, it added.

With the recovery in the stock market, the primary segment of the capital market has also witnessed increased activity in the recent period. This, combined with the easing of international financing conditions, augurs well for a pick-up in investment activity, the central bank said. The business confidence surveys also point to further improvement in outlook despite weak perception of export demand.