But says supply-side concerns need to be addressed; bank capital also a challenge

The worst might be over for the economy following the formation of a stable government, though supply-side issues needed to be solved to help monetary policy bring down inflation, the Reserve Bank of India (RBI) said in its bi-yearly Financial Stability Report on Thursday.

The overall tone of the report reflected optimism generated by the thumping majority scored by the Bharatiya Janata Party in the recently-concluded general elections. “Going forward, with the formation of a stable government, the prospects of recovery appear bright,” the RBI said.

The central bank drew comfort from reduction in both fiscal and current account deficits and moderation of consumer price index (CPI) -based inflation.

The report also said the general risks facing the Indian economy were expected to come down. However, the supply-side constraints needed to be addressed to complement the RBI’s efforts to contain inflation.

“Markets expect more decisiveness in government policy formulation, as well as greater efficiency in implementation,” RBI Governor Raghuram Rajan said in the foreword to the report.

“Further progress on fiscal consolidation, a predictable tax & policy regime and low and stable inflation rates will be the key anchors in promoting India’s macroeconomic and financial stability,” Rajan added.

RBI said easing of domestic supply bottlenecks and the progress on implementation of stalled projects that had already been cleared should further improve the growth outlook.

For more visit: Business Standard

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