New Delhi: The government must revive investment to boost India's faltering growth rather than support consumption demand, which is stoking inflation, Reserve Bank of India Governor D Subbarao said Tuesday, while defending the central bank's decision to leave key policy rates unchanged Monday.
"The most import thing we have to do to revive growth is to revive investment (and) not support consumption so much...," Subbarao said at an event.
India's gross fixed capital formation growth, or investment rate, decelerated considerably to 5.5% in fiscal 2011-12 from 8.8% in 2009-10, he said.
Earlier Monday, the RBI kept the repo rate and cash reserve ratio unchanged to tackle inflation while adding that high interest rates have a small role in hurting economic growth, which tumbled to a nine-year low in the March quarter.
Subbarao also said that India faces high current account deficit primarily due to elevated consumption demand and the country's inability to "produce enough".
"So we need to produce more before we start consuming more. In order to produce more we need to invest...", he said.
India's current account deficit may have widened to 3.6% of the GDP in the fiscal year 2011-12 from 2.6% a year ago, according to the Prime Minister's Economic Advisory Council, a level worse than the 3% seen during the 1991 balance of payments crisis.
Subbarao further reiterated that inflation still remains above acceptable level and that high interest rate is not the driving factor responsible for slowdown in economic growth.
The country's wholesale price index (WPI) inflation accelerated to 7.55% in May from 7.23% in April due to rise in food and fuel prices, while the consumer price index (CPI) grew 10.36% on-year in May faster than 10.26% (final) recorded in the previous month.
Investors have become wary of putting their money into India on account of slower growth and stalled policy reforms, which are essential to be addressed to spur investments in the country.
While the government has been unable to build political consensus with major opposition parties and most of the time with its own allies in passing key policy reforms, clouding investment prospects across various sectors.
India's industrial output for the month of April also remained almost flat with a 0.1% growth on-year. Industrial production had contracted by 3.2% in March.