Though the Indian economy is set to grow by 7 to 7.5 percent this fiscal, Chief Economic Advisor to Prime Minister Mr.Rangarajan said that India has to maintain an overall growth of 9 percent per annum in farm output for the common man to realize the benefits. The growth in the agricultural sector is projected to decline by 1 to 2 percent this year. Food prices have increased sharply last year and agricultural sector has to grow by 4 percent per annum this year to improve food security and to increase the income for the rural population. This will also help in an overall growth rate of 8 percent this year.

Addressing a seminar Mr.Rangarajan, said that “To contain inflationary pressures, the Reserve bank of India may have to resort to increasing the cash reserve ratio thereby draining money from the banking systems if prices are do not decline”. He further said that persistent inflation could further affect other areas such as manufacturing sector. Inflation has remained strong in primary articles at 13-14 percent and food articles at 18-19 percent. Indian agriculture is largely dependent on monsoon. A weak monsoon in the current year will further increase the food prices. Mr.Rangarajan, said that to ensure growth in the agricultural sector, it is important to improve rural infrastructure with an emphasis on increased generation of power.

Even as economists of the world look towards India optimistically, statistics say that all is not well. The credit outlook for most Indian banks remains negative after the changes made in January earlier this year. Though the fundamental credit outlook was stable, the economic conditions still remain challenging and the number of problem loans or ‘bad’ loans still continues to be on the rise. Of course, the result of all this is an adverse effect on the quality of assets.

It has been estimated that even in the next twelve to eighteen months, things are not going to change for the better. There are no optimistic projections for the next year or two. The public sector banks, which make up the majority of the banking systems and assets, continue to hold a strong front. The concern for the deteriorating asset quality still looms large.