Mumbai: Pitching for reduction in subsidies and narrowing of fiscal deficit, the Reserve Bank Monday said sustained reforms hold the key for improving the business sentiment and achieving sustained growth.
"The key to demand revival lies in improving the investment climate as well as investor sentiments through sustained reforms," RBI said in its report on Macro-economic and Monetary Policy Developments ahead of the third quarter monetary policy review tomorrow.
The Reserve Bank of India (RBI) also expressed concerns over the quality of fiscal adjustment, even as it said fiscal risks have have come down in 2012-13.
The central bank asked the government to cut down spending, especially on subsidies, for achieving sustainable fiscal consolidation.
The Reserve bank also predicted a significant shortfall in tax revenue in the current fiscal, at a time when the government is working towards achieving revised fiscal deficit target of 5.3 percent by restricting both plan and non-plan expenditure during the last quarter of the year.
Further, the RBI raised issues that come in the way of turnaround in industrial output, including issues facing the power and infrastructure sectors.
"Coal supply issues facing the power sector are yet to be fully resolved. Road investments have stalled due to issues relating to environmental clearances, land acquisition and financial closures," the RBI observed.
Meanwhile, the professional forecasters sponsored by the RBI have lowered the growth projection for the current fiscal to 5.5 percent from 5.6 percent projected earlier. They have also cut the growth forecast for the next financial year to 6.5 percent from 6.6 percent.
As regards prices, RBI said inflation was likely to moderate below its projection of 7.5 percent by March-end.