Expressing satisfaction at the performance of the manufacturing industry, Reserve Bank of India Deputy Governor Rakesh Mohan said on Thursday that the economy is at the beginning of an upturn.

"There's something in the air," he said, while adding that institutions should be more generous in funding new opportunities.

The Indian economy has had a decently good record of growth and the average income of a family of five has risen to more than Rs 100,000, the RBI deputy governor said.

"We are a middle income country. There is a palatable different in people's level of living. We are no longer poor," he said.

Mohan explained the basics of the economy are good by highlighting:

• Inflation rate is under control between 3-3.5 per cent.
• Foreign exchange reserves are at over $70 billion.
• Food stocks are of the kind that has never been before.

Due to these factors, it is even possible to achieve a growth rate of over 8 per cent, he said.

Asserting that even a year of high oil prices, massive drought and a world economic slowdown did not make much difference to the country, Mohan said in the past 50 years, even one of the crises could have spelt trouble for the economy.

Mohan emphasised the importance of management of financial savings and said people's savings should be channelised to more productive activities.

As opposed to the earlier scenario where individuals could invest only in Unit Trust of India, post office savings or fixed deposit schemes offered by banks, Mohan said today there is a wide spectrum of investment opportunities available to people, wavering to individual risk profiles.

With government securities now made tradable to retail investors, Mohan said that despite there being risk in terms of appreciation and depreciation in gilts, the (risk) variance is much lower than that in equities.

The deputy governor also said that the different home finance schemes made available to people was like 'music to my ears.'

RBI is closely watching the liquidity scenario

RBI is closely watching the liquidity scenario to decide whether it needs to conduct fresh open market sales, the central bank's deputy governor said.

"Liquidity continues to be under constant watch and that is why we did the open market sales (on Thursday)," Mohan told reporters on the sidelines of a management seminar.

"We will continue to monitor the situation," he replied, when asked whether the central bank would consider more open market sales.

He said monetary authorities were neither comfortable nor uncomfortable with the current bond yield levels.

"The market will decide the realistic level of bond yields," he answered when asked to comment on why yields had fallen despite the open market auctions on Thursday.

Government bond yields had dropped to life lows earlier in the week on abundant funds and hopes of a cut in the short-term repo rate. But Mohan said the central bank was not planning to cut the repo rate now.

Effects of drought may be felt in few months

"The effects of the drought may be felt in the next few months, but one cannot say with certainty whether industrial recovery will continue, but we expect it," Mohan said.

The current (low) interest rate regime situation may also aid industrial recovery, he said adding, "Imports are expected to grow in tandem with industrial growth."

For the last five years, imports were uncharacteristically low as a relation to slow industrial growth. However, in this fiscal there has been a good growth in capital goods sector, he said.

Additional inputs: Agencies