High inflation rate - biggest risk to growth outlook: Economic Review Feb-14-2014

Presenting not so rosy picture of the economy and also echoing RBI’s views, the government in its ‘Mid-Year Economic Review’ tabled in the Rajya Sabha on Thursday acknowledged that high inflation rate was the biggest risk to growth outlook and pressed the need for bringing down the headline wholesale price inflation (WPI) below 6%.  Besides this, it made note of limited ability of RBI had to extend monetary policy support to growth revival in the background of high inflation. On the positive side, the report noted that despite cuts in government spending, private consumption expenditure and gross fixed capital formation had increased, indicating that the structural reforms undertaken by the government had started to bear fruits. The document highlighted that a decisive pick-up in economic activity could be gradually expected in the Indian economy over the next few quarters. As per the review, the Indian economy grew by 4.6% in the first half of 2013-14 (Apr-Mar), compared with 5.3% in the same period of the previous fiscal. Further, the review pegged India’s 2013-14 growth at 5.0%, in line with Central Statistics Office’s (CSO) advance estimate released last month. However, it also said that it may take some more time for the economy to reach its higher growth potential.