RBI sees growth rising to 5-6% in FY15: Highlights from its annual report

In its annual report, the Reserve Bank of India (RBI) reiterated its commitment to bring down the consumer price index to 6 percent by January 2016, saying it was ready to use monetary policy to address high inflationary expectations and sticky core inflation.

Here are the highlights from the report:

- FY15 GDP growth seen at 5-6 percent.Overall growth in 2014-15 is likely to be better than previous year with likely revival in industrial and construction activities.

- Expenditure restraints will be necessary in FY15, CAD may widen from last year but will remain at sustainable level

- Non-plan expenditure remained broadly at the budgeted level, although expenditure on majorsubsidies exceeded budgetary targets. Capital expenditure was lower than budget estimates by 18 per cent

- IIP growth is beginning to look up, decline in oil prices will offset pressure from high food prices.

- Thecurrent account deficit was large in Q1 of 2013-14 at 4.9 percent of GDP, a correction in CAD subsequently helped compress full year CAD to 1.7 percent of GDP.

- The Union Budget aims to keep the economy on the path of fiscal consolidation. However, strict adherence to fiscal discipline to avoid overshooting of expenditures and concerted efforts to mobilise tax and non-tax revenues, as also strong efforts on non-debt capital receipts will be necessary to attain these fiscal targets.

- The business and investment climate in the economy is improving with the formation of a stable government at the Centre, a comparatively lower inflation and an improvement in global growth.

- Decline in oil prices could offset pressure fromfood prices.Some of the increase in food prices could be temporary.

- The fiscal deficit is likely to reduce further in 2014-15. The budgetary targets are realisable, though concerted efforts will be necessary to achieve these targets. The CAD though is likely to widen from the levels in 2013-14, is expected to remain within the sustainable level.

- Improving tax administration will help as general government tax receipts accounts for over 80 per cent of revenue receipts in India. For increasing tax collections, it is important to improve tax efficiency and tax buoyancy.

- Given the infrastructure deficit, a large opportunity awaits the private sector for participation in the growth of the infrastructure sector. These opportunities exist in road, railways, ports and power sectors.

- The credit quality of banks has deteriorated notably over the last three years. Gross NPAs increased from 2.4 per cent of gross advances in March 2011 to 4.4 per cent in December 2013, before declining somewhat to 4.1 per cent in March 2014.

- Lessons from the current NPA cycle: First, there is a need for countercyclical capital buffers and dynamic provisioning to deal with cyclical economic movements. Second, there is need to focus more closely on the restructuring of standard loans.