Recession: Worse not yet over, says RBI

Warning that the worst may not be over yet, Reserve Bank Governor D Subbarao has said the global economic recession may not only continue through 2009 but could prolong to the next year as well.

"Even with current levels of policy intensity, the trough of the global recession is not seen until the end of 2009 and could get pushed out further if the policy responses fail to gain traction," Subbarao said at the International Monetary Fund-World Bank spring meetings.

Leading the Indian delegation to the International Monetary and Financial Committee meet in Washington, he said India is expected to grow at 6.5 to 6.7 per cent in 2008-09, and the real GDP growth for 2009-10 would be about 6 per cent.

A statement by RBI further quoted Subbarao as saying, "The most frequently asked question today is whether the worst is behind us. While there are incipient signs of business confidence and consumer spending trying to gain toehold, rising unemployment, high inventories and financial stress weigh heavily on overall demand conditions," Subbarao said.

The RBI's policy response was aimed at containing the contagion from the global financial crisis while maintaining comfortable domestic and forex liquidity as it launched three fiscal stimulus packages apart from other measures, he said.

"The combined impact of these fiscal measures is about three per cent of GDP. Through the Reserve Bank's actions (rates cut), the cumulative amount of primary liquidity potentially available to the financial system is about seven per cent of the GDP," Subbarao stated.

However, he said several challenges such as implementing the fiscal stimulus packages, revival of private investment demand, maintaining the flow of credit while ensuring credit quality, and preserving financial stability were still left.

Calling for a quick and internationally coordinated approach to "a daunting, but not an insurmountable challenge", he stressed on empowering IMF's capacity to grapple with the crisis. He also suggested a radical shift within IMF in tune with the changing world.

"While the recession has intensified in the advanced economies, emerging economies have been dented by the collapse in external demand and commodity prices, the tightening constraints on access to external financing and the retrenchment of capital flows."

Asking for India's greater voice and representation in the Fund, Subbarao also said, "We call for the introduction of an open, merit-based process, irrespective of nationality and geographical preferences, for the selection of the senior management of the Fund."