India can recover faster than China: RBI
India can recover from global economic slowdown faster than China as the economy is driven by domestic consumption, but the country needs to "get its act together" for this to happen, Reserve Bank Deputy Governor Anand Sinha said on Sunday.
Beijing: India can recover from global economic slowdown faster than China as the economy is driven by domestic consumption, but the country needs to "get its act together" for this to happen, Reserve Bank Deputy Governor Anand Sinha said on Sunday.
Speaking to reporters, Sinha also said "confidence issues like the general pessimism and not-so-good-feel factor also affected the economy".
"Both economies (India and China) are affected by the global economic slowdown but India being a domestic consumption driven economy could recover faster," he said.
"But for that we have to get our act together. Being dependent on domestic economy, we would be less affected by export sector performance. So, that could be our strength. But we have to get our act together and whatever weaknesses we have to get around them," he said responding to a question.
When asked what should be done by India to arrest the slide in growth, he said, "We have to get hold of inflation. If we get hold of it, growth will have better prospect. Once growth takes off things would be better.
Retail inflation in India is in double digits at 10.03 percent. RBI had been repeatedly saying that focus of its monetary policy is on controlling inflation.
"We must realise that even if we put our domestic situation on sound footing, what happens in the rest of the world, we cannot be totally immune to that. So you will not have the same growth rate as we would have had if the world economy is in good shape."
Sinha also said "not so good feel factor", besides the global economic slowdown, for the current domestic situation.
"One reason is global economic slowdown. That has affected us is the trade channel. We are not export dependent but exports suffered due to global economic crisis. Apart from trade issues, confidence issues like the general pessimism and not so good feel factor also affected the economy," he said apparently referring to criticism about policy paralysis.
"Sentiments are very important when it comes to taking business decision," he said.
India's problem is partly due to financial markets, Sinha said.
"We are globalised to some extent. There are also we are affected. It affects the equity markets and foreign exchange rate," he said.
Essentially the problem in India came due to inflation, he said. "We are a supply constrained economy. Because of that inflation has risen, essentially the food inflation. That is a supply side issue," he said.
The other factor was that India has been affected by loose monitory policy being followed by various countries to tide over the crisis which in turn led to increase in commodity prices, he said.
Also rising oil prices affected the economy. India is heavily dependent on oil which also adds to inflation, he said adding that the prices keep going and up down.
"As a result we have to tighten interest rates," he said.
On growth rates he said, "I would only say the growth has to go upwards. How much we can go I cannot say. All policies have been geared to go up," he said.
India registered 5.5 percent economic growth rate in April-June period this financial year-- the worst first quarter performance in a decade. The expansion was mainly pulled down by poor show by the manufacturing sector.
About RBI cutting down the interest rates he said, "RBI is mindful of inflation growth in excess. At the same time RBI first task is to keep inflation down. What will happen in the next few weeks is not possible for me to say. Intense review is carried before any decision is taken so I won’t be able to tell you".
RBI's half yearly monetary policy review is expected on October 30.
On the success of FDI in retail he said, it all depends on how much India gets in the end.
"On the positive side it improved sentiment as was shown in the market. Rupee has rebounded to a considerable extent. There is certainly promise," he said.
Sinha is in Beijing to take part in the Regional Policy Forum on Financial Stability and Macro-prudential Supervision, where he spoke on Mitigating Procyclicality in Banking and Bank Regulation.
At the conference, Sinha spoke of how Indian banks managed to tide over the 2008 economic crisis by following policy of Capital Adequacy Ratio in certain sectors, which came in handy during the crunch time.
He said there is also general discussion about the new international banking regulations being contemplated to ward off future crisis.
"There are apprehensions in India an all the countries, when the capital requirement becomes much higher what happens to growth."
During the conference the official studies conducted evaluating pros and cons were discussed, he said.