The Reserve Bank of India on Saturday said the country's economic position was very strong and it could help the country attain big growth.
India's central bank foresees the nation's gross domestic product growth for the fiscal year 2003-04 at 6 per cent and based on these projections it has hinted at the possibility of achieving 8-9 per cent GDP growth in the coming years.
"Our macro-economic position is very strong, with low inflation and interest rates, and high forex reserves, which is congenial to carry forward the financial sector reforms and accelerate growth by 2-3 per cent in the medium term," RBI Governor Bimal Jalan said at a conference organised by the Institute of Chartered Accountants of India in New Delhi.
He said the RBI maintains its stance of 6.0 per cent GDP growth projections for this fiscal year, based on a normal monsoon compared to the Central Statistical Organisation's estimate of 4.3 per cent last fiscal.
The RBI is expected to review its growth projections depending on the monsoon and other economic parameters in its Credit Policy in October, he added.
"The interest rates are soft, the liquidity is good and inflation is not so bad now," Jalan said, justifying a higher growth potential for the economy.
He ruled out an immediate change in the repo rate saying it would be decided only after the monsoon and inflation rate situation becomes clear.
"You can not change policy day-by-day," Jalan said, adding that the April Credit Policy stance will continue.
The central bank had maintained a soft interest rate bias, while projecting a low 5-5.5 per cent inflation rate and 6.0 per cent GDP growth in this fiscal in April.
Jalan did not subscribe to the view that inflow of foreign funds in the country was only on account of the arbitrage opportunities available due to interest rate differential between Indian and international markets.
"Our interest rates were 600-700 basis points higher than overseas markets 5-6 years ago, but there was no significant inflow of forex into the country. So there is no definite relationship between interest rates and flow of foreign exchange," he said.
"Today's markets are more volatile and inter-linked. The financial sector has to be closely monitored and supervised," he said.
Small changes in policy decisions by financial intermediaries make a big difference in the financial market where hundreds of crores (billions) of transactions take place daily, he said, and stressed on greater disclosures and efficient accounting practices.
He said financial advisors and institutions have come under close scrutiny after the Enron and other corporate scams.
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