Weakness in manufacturing urgently needs to be reversed: RBI

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SME Times News Bureau | 18 Jun, 2013
The Reserve Bank of India Monday expressed concern over continuing weakness in manufacturing activity and called for a conducive environment for private investment and faster clearance of projects to stimulate economic growth which slowed to a decade low of 5 percent in the last fiscal.

"The continuing weakness in manufacturing activity needs to be urgently reversed. Key to reinvigorating growth is accelerating investment by creating a conducive environment for private investment, improving project clearance and implementation and leveraging on the crowding-in role of public investment" the central bank said in the mid-quarter monetary policy review.

Voicing concern, it said all constituent categories of industry have slowed, with a persistent contraction in mining activity.

"The continuing weakness in manufacturing activity needs to be urgently reversed," it stressed.

The growth of industrial production decelerated to 2.3 percent in April after picking up in the preceding month.

"The sharp weakening in the growth of capital goods production points to still damped investment demand whereas a pick-up in consumer non-durables could be indicative of a fragile return of consumer confidence."

On the domestic front, the RBI said, last year's robust rabi production and the current monsoon performance so far augur well for growth prospects. It further noted that the onset of the south-west monsoon had been strong and on time.

"The spatial and temporal distribution of rainfall over the next three months will be crucial in determining the performance of agriculture."

Pulled down by poor performance of farm, manufacturing and mining sectors, economic growth slowed to 4.8 percent in January-March quarter and fell to a decade's low of 5 percent for 2012-13 against 6.2 percent in the previous fiscal year.

The RBI painted a gloomy picture of the economy, saying that "macroeconomic conditions remain weak, hamstrung by infrastructure bottlenecks, supply constraints, lacklustre domestic demand and subdued investment sentiment. Inflation has moderated as projected".

However, upside pressures on the way forward from the pass-through of rupee depreciation, recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects.

"As recent experience has shown, shifts in global market sentiment can trigger sudden stop and reversal of capital from a broad swath of emerging economies, swiftly amplifying risks to the outlook. India is not an exception."