RBI to raise growth forecast

Buoyed by better than expected GDP growth of 7.9 per cent in the second quarter, the Reserve Bank on Monday said it will have to raise the country's growth outlook for 2009-10 from the current estimates of 6 per cent.

"Clearly this (Q2 GDP growth of 7.9 per cent) is better news than we could have expected, and we will have to review forecast for the year as a whole," RBI depty governor Subir Gokarn told reporters at the Finance Ministry.

However, he stopped short of giving a new estimate, saying the recovery was mainly driven by government spending and it was premature to forecast without knowing the impact of the monsoon on the third quarter figures.

"We shouldn't ignore the fact that it is still currently being driven substantially by public spending... a recovery will only be sustained if private sector through consumption, investment and exports starts to stabilise," he said.

Though he said signs of private sector stabilising were there, one could draw comfort about the durability of recovery only after the transition takes place from the government-led to private sector-led recovery.

Even as he expects a negative agricultural growth for the third quarter, Gokarn said the economic stimulus cannot remain permanently and the next move, whenever happens, would surely indicate the government's exit.

"It's not a boom yet but it is indicating that we don't need to be in a sort of permanent stimulus mode ... the next move, whenever it comes will indicate a change (in monetary policy)," he said.