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India industrial outlook cause for concern, says RBI

The Reserve Bank of India on Tuesday expressed concern over the outlook for industry, currently grappling with a severe slowdown, and said a pick-up was crucial to ensure higher economic growth.

The central bank said its forecast of 6.0-6.5 per cent growth in gross domestic product in the current fiscal year (April-March) was based on a favourable monsoon and an industrial recovery in the second half of the year.

"On the whole, the monsoon conditions have turned out to be not unfavourable. However, the industrial outlook continues to be uncertain and a cause for considerable concern," it said in its annual report for 2000-01 (July-June).

"The realisation of the growth rate projected in April 2001 is dependent on a sharp reversal in current industrial trends during the post-monsoon period," it said.

The RBI's GDP growth forecast was made in its monetary and credit policy for 2001-02, issued in April. GDP growth slowed sharply to 5.2 per cent in the year ended March 2001 from 6.4 per cent a year earlier.

Indian industry is battling a slowdown, with the index of industrial production growing just 2.1 per cent in April-June 2001, sharply down from 6.1 per cent in the year earlier period.

Both structural and cyclical factors have contributed to the slowdown. Poor investment demand has led to lower capital goods output and a decline in power generation, the RBI said.

Industrial production slowed to an annual average growth rate of 6.6 percent in the period after reforms started in 1991, from 7.8 per cent in the 1980s, it said.

"A conducive environment for the industrial revival would hinge upon reforms in the labour market to bring about the necessary flexibility and supply response," it said.

Business needed better exit options through changes to the current laws on industrial sickness, industrial disputes and bankruptcy, the RBI said.

"The impetus for accelerated industrial growth could be released by substantially raising investment in infrastructure, hastening of the divestment process and restructuring of public sector enterprises," it said.

It also called for a conducive environment to be created for fast growing sectors such as information technology, pharmacology, biotechnology and entertainment services.

These sectors, where India enjoyed a competitive edge, could be harnessed to accelerate growth, the RBI said.

The central bank added that other factors were expected to support growth -- headline inflation was expected to be around five per cent and the current account deficit was seen to be below two per cent of GDP.

While growth prospects would also depend on the progress of the sluggish global economy, India's relatively low dependence on exports would cushion its economy from adverse external developments, the RBI said.

The central bank follows a July-June accounting year while India's fiscal year runs from April to March.

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