“These risks, if (they) materialise, could have some adverse impact on the domestic economy,” it said. “Global financial markets could turn volatile with attendant implications for emerging market economies like India. Further deterioration in sub-prime delinquencies could lead to reassessment of risk by investors across products and markets and retrenchment of capital from the emerging market economies, given the contagion and herd mentality.”

The RBI was also concerned about infrastructure. A higher growth in demand is placing greater pressure for accelerated expansion of supply of infrastructure, despite some efforts to remove supply constraints in the sector. Capacity utilisation was especially stretched in sectors such as electricity generation, roads, ports and major airports, RBI said.

Central banker’s VIEW

• Expects 8.5% growth to continue in 2007-08

• Inflation to be under 5% if things remain normal

• Calls for continuous vigil on the prices front

• Volatility in world markets may adversely affect emerging economies such as India

• Worsening of sub-prime defaults could lead to reassessment of risk

Core sector growth to touch 8% of GDP

A resurgent infrastructure sector, which has recorded growth upwards of 8 per cent this fiscal, is on an ascent. A composite index of six infrastructure industries — electricity, coal, finished steel, cement, crude petroleum, and petroleum refinery products — reveals that the industries have grown at a combined rate of 8.6 per cent in 2006-07, up from 6.2 per cent last fiscal. Of these, finished steel and petroleum refinery products sectors have shown double digit growth at 10.9 and 12.3 per cent respectively. The growth is expected to be even higher over the next few years, with the High Level Committee on Infrastructure headed by the Prime Minister estimating an investment of Rs 14,50,000 crore in the 11th plan to develop world class infrastructure. This would need a substantial increase in spending on infrastructure by both the public and private sectors from the current levels of 4.6 per cent of GDP to almost 8 per cent.

... contd.