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Economy is looking up but only just: RBI governor

Reserve Bank of India governor Bimal Jalan today said the medium term outlook for the economy has improved considerably but warned that the signals are only initial.

''Many indicators look good,'' Dr Jalan said addressing a seminar on mid-term review of the Indian economy. It was organised by the Associated Chambers of Indian Industry.

The RBI governor said inflation was below three per cent while growth is expected to be above six per cent. Foreign exchange reserves are comfortable and the capital market is 1900 points above the level 18 months ago.

However, Jalan warned that ''this is only a window and windows can close, so let's put our house in order''.

Among the things to be put in order included fiscal correction. ''Fiscal deficit like this cannot go on for 20 years. It does not lead us anywhere. It is only cycling and recycling of money,'' he said.

The fiscal deficit has led to a situation where all investment in the public sector investment has come from borrowings.''Where is the question of a family jewel?'' he asked.

Jalan expressed doubts over the central government's MoU (memorandum of understanding) mechanism for bringing about discipline in state finances. ''MoUs with the states will have sanctity if the political system is firm. Unless the political system is effective, I do not know whether signing MoU with the states will succeed,'' Jalan said.

He said the central bank has more or less succeeded in controlling the direct borrowings of the bank by enforcing a cap. ''The problem is that of administration in the states,'' he said.

UNI

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