Backed by good growth in exports and strong recovery in agriculture, the Indian economy could even grow beyond seven per cent, Reserve Bank of India Governor Y V Reddy has said.
The downslide for exports seems to be remote and could have a significant positive impact on the industrial activity. The industrial sector is likely to grow at six per cent in the current fiscal, Reddy told reporters in a post-policy review interaction in Mumbai on Tuesday.
'We must prepare for 8% growth over the next 2-3 years'
The agriculture sector is expected to witness a strong rebound and could even go beyond seven per cent, he said.
The services sector could also grow over seven per cent, and taking into account the aggregate effect, the gross domestic product could grow beyond seven per cent, Reddy said.
The apex bank in its Monetary and Credit Policy review has revised the GDP growth to 6.5-7 per cent with an upward bias as against the six per cent estimate announced in the April policy.
Commenting on keeping the bank rate intact, Reddy said it depended on host of factors like inflation and fiscal deficit and added that it would be flexible based on savings and investments.
On the need for banks to hedge foreign currency loans to corporates in excess of $10 million, Reddy said it would also cover external commercial borrowings by corporates.
Reddy said, "There is need for corporates to convince the banks, which have to watch out for the risks. It is mandatory for the banks to assess the risk before committing themselves".
The banks may also have to take a look at the old foreign exchange loans and make a judgement, he added.
On the tenor of government securities, which come up for auction, Reddy said, "We have to take into account expectations of various players like insurance pension funds, who want a longer tenor and mutual funds seeking a shorter duration".
Referring to sterlisation of excess funds in the market due to higher foreign exchange inflows, Reddy said RBI had many instruments other than OMO auctions to deal with liquidity.
"We are also conducting a technical analysis of using various options for sterlising the capital flows", he added.