Government reforms will put economy back on high growth track: RBI

Supporting the government's recent reforms push, the Reserve Bank (RBI) today said measures like allowing foreign direct investment (FDI) in some sectors and efforts towards fuel price deregulation should put the economy back on a high growth trajectory and spur investment inflows.

Various measures, including the liberalisation of FDI in retail, aviation, broadcasting and insurance, the deferment of general anti-avoidance rules (GAAR), the reduction in withholding tax on overseas borrowings by domestic companies and the setting up of a Cabinet Committee on Investment should spur investment," the RBI said in its third-quarter policy review.

These policy actions could help engender stable macroeconomic conditions and return the economy to its high growth trajectory, it added.

The central bank also said that measures like progressive deregulation of administered fuel prices, along with adherence to the path of fiscal discipline, can help the government bring down the current account deficit as well as the fiscal deficit to manageable levels.

RBI Governor D Subbarao surprised the market by cutting the short-term lending rate, repo, by 0.25 per cent to 7.75 per cent and the cash reserve ratio (CRR) by a similar margin to 4 per cent, releasing Rs 18,000 crore primary liquidity into the system.

While the repo rate cut will reduce the cost of borrowing for individuals and corporates, the CRR -- which is the portion of deposits that banks have to park with RBI-- will improve the availability of funds.

The RBI, however, has reduced the growth projections for the current financial year to 5.5 per cent from its earlier estimate of 5.8 per cent. On inflation, it moderated the rate to 6.8 per cent for March-end from earlier projection of 7.5 per cent.