RBI lowers GDP growth projection to 5.5%

The Reserve Bank on Tuesday lowered the growth projection for the current fiscal to 5.5 per cent from its earlier estimate of 5.7 per cent and asked the government to undertake policy measures to improve investment climate.

"While the onset of the monsoon and its spread have been robust, the persisting weakness in industrial activity has heightened the risks to growth," RBI Governor D Subbarao said while announcing the first quarter policy review.

The RBI in its annual policy in May had projected the economy would grow at 5.7 per cent. The government in February estimated 6.5 per cent growth for 2013-14.

Global growth, Subbarao said, continues to remain tepid, which in turn has affected India's trade and manufacturing activities. He further said the investment climate remains weak and risk aversion continues to stall investment plans.

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"Without policy efforts to address the deterioration in productivity and competitiveness, the pressures from wage increases and upward revisions in administered prices could weaken growth even further and exacerbate inflation pressures," Subbarao said.

He said the outlook for investment is inhibited by cost and time overruns, high leverage, deteriorating cash flows, erosion of asset quality and muted credit confidence.

The country's economic growth hit a decade low of 5 per cent in the last fiscal on account of poor performance in the farm, manufacturing and mining sectors.

Earlier this month, the Asian Development Bank lowered its growth projection for India to 5.8 per cent in calendar 2013 from 6 per cent estimated earlier, citing the slow progress of economic reforms.