RBI deputy governor Rakesh Mohan said on Friday that agricultural productivity continues to be a major challenge, despite the overall economic progress and sliding inflation.
RBI comfortable with inflation levels, economic growth
MUMBAI: Reserve Bank of India (RBI) deputy governor Rakesh Mohan said on Friday that agricultural productivity continues to be a major challenge, despite the overall economic progress and sliding inflation.
“There has been a significant reduction in inflation. Inflation had slid from 5% in late the 1990s to below 4% today. The biggest concerns were when inflationary numbers were as high as 8-9% in the previous two decades. Today, they remain under control,” said Mohan.
Mohan was speaking on the sidelines of a global banking summit organised by the Federation of Indian Chambers of Commerce and Industry here.
He said companies and regulators faced a lot of discomfort when headline inflation numbers grew above 6% early this year.
India’s headline inflation rate fell to a 99-week low of 3.52% for the week ended September 1 from 3.79%, a week earlier.
While inflation is on a downtrend, there has been a significant growth in the corporate sector. “There has been a rapid increase in the number of companies in India. It has risen from 2,50,000 in 2002 to 7,32,169 companies in 2006,” Mohan added.
While RBI seems comfortable with inflation numbers and the progress of the corporate sector, one of the hurdles it faces is the low agricultural productivity in the country.
“Agricultural prospects need greater attention as they still remain stagnant,” Mohan said.
Apart from agricultural productivity, issues like credit penetration and financial inclusion has to be focussed on, he said.
“While there has been a rise in bank credit, credit penetration still remains low. Small and newer firms still face the problem of obtaining credit to start their operations. Also, external agencies are finding it difficult to open companies in India due to loads of regulatory requirements,” said Mohan.
According to the RBI, the share of bank credit rose from 27% in the year 2000, to 51% in 2007.
Mohan also expressed his concern over the huge increase that has come about in the technological payments and business and management consultancy services, while the expenses for technological assistance almost doubled to $1,000 million in 2006-07 from $500 million in 1990-91.
Despite several issues, the capital market penetration and financial sector in India have strengthened over the years, he said.
“The entry of new private sector banks, more branches to foreign banks, heavy investments, and establishment of the Securities and Exchange Board of India, with the strengthening of the government securities market, are all signs of the growing financial sector in India,” said Mohan.
Mohan praised the banking sector for showing a remarkable improvement in bringing down their gross non-performing assets (NPAs) from 15% in 1996-97 to 3.3% in 2005-06.
Foreign direct investments (FDIs) have kicked off rapidly in India. FDI investments in India during 2006-07 were about $18 million as compared to $2 million in 2001-02. With the improvement in growth and business, market capitalisation grew from 11% to 1982 to 21% in 2005.
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