Tight-money & policy uncertainity leading to slowdown

“Growth is clearly decelerating. This reflects the combined impact of several factors like the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties,” it said. While several key economic legislations, including insurance and PFRDA bills, are pending in the Parliament, the government had to recently put on hold its decision to open the multi-brand retail sector to foreign investors. RBI said that, since October, the global economic outlook, amid euro zone crisis, has worsened significantly and is posing threats to emerging market economies (EMEs), including India.

The apex bank further said that while agricultural prospects look promising on account of expected record kharif output and satisfactory progress on rabi sowing, there are concerns on industrial performance. “Industrial activity is moderating, driven by deceleration in investment, which is a matter of serious concern,” the central bank said.

Referring to the recent European Union summit, it said: “ [The] agreement did not assuage negative market sentiments, thereby increasing the likelihood of persistent financial turbulence as well as a recession in Europe.”

The RBI also expressed concern on high crude-oil prices despite global slowdown as India imports about 80 per cent of its crude oil requirements. Global growth in 2011 and 2012 is expected to be lower than earlier anticipated, it added.