• According to the revised estimates released by the Central Statistical Organisation (CSO) in May 2008, the real GDP growth was placed at 9.0 per cent during 2007-08 as compared with 9.6 per cent in 2006-07. The deceleration in growth was on account of industry and services, offset partly by recovery in agriculture.
• Available information on Central Government finances during April-May 2008 indicates that revenue deficit and gross fiscal deficit were higher than a year ago, both in absolute terms and as proportion to budget estimates. Gross primary deficit in April-May 2008 was also higher than a year ago. The widening of fiscal deficit of the Central Government during April-May 2008 was mainly on account of a sharp rise in plan expenditure over April-May 2007. On the other hand, non-plan expenditure was contained mainly due to moderation in the growth of interest payments and major subsidies, and decline in defence expenditure.
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The Reserve Bank of India hikes repo rate and CRR
Although the increase in the repo rate by 50 bps was unexpected, the firmness of its anti-inflationary stance sends a strong signal to the markets that the Reserve Bank of India (RBI) sees spiralling inflation as a far greater threat than slowing growth. Coming soon after a similar move last month, Tuesday's announcement leaves no one in any doubt about the central bank's determination to bring the rate of inflation down as quickly as possible. While the measures will have an adverse impact on demand through higher interest rates, which are bound to increase, given the tight liquidity conditions, the threat that rising inflationary expectations poses to medium-term growth performance is real and justifies the aggressive anti-inflationary stance taken by the RBI, even if it comes at some cost in the form of slower growth in the immediate future.
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