Dubai: New economic initiative by the Vajpayee government has brought about a turnaround in the economy, paving the way for higher growth in the coming years but containing high fiscal deficit would continue to be the main challenge, RBI (Reserve Bank of India) Governor Y V Reddy has said.

He listed the new initiatives as passage of Fiscal Responsibility and Budget Management Act and structural reforms, which would be aided by the recovery in agriculture.

The overall policy environment has fostered macro-economic stability, he said, adding this has generated optimism regarding the medium term.

Reddy, however, did not give any numbers for growth in the coming years.

"The main challenge in the macro-economic management today is reducing the high fiscal deficit and improving the quality of fiscal adjustment," Reddy, who recently took over as RBI Governor, told the financial committee meeting of the International Monetary Fund-World Bank in Dubai on September 22.

"The growth rate of Indian economy at 4.3 per cent in 2002-03, though lower than expected, was one of the highest in the world," he said, adding this indicated the growing resilience acquired by the Indian economy over the years.

Against the backdrop of several adverse developments including severe drought, uncertain global environment and considerable hardening of oil prices, the Indian economy performed reasonably well during 2002-03, he said.

PTI