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RBI Governor Urjit Patel Gung-ho about India’s Economic Growth

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The Reserve Bank of India Governor, Urjit Patel, thinks that the country’s economy would accelerate in the current financial year 2018 – 19. He expressed the confidence that India could overcome the resilient performance seen in 2017 – 18 and deliver an accelerated pace of growth. The improved sentiments come on the heels of expected dying down of the demonetization impact and the launch of the GST in July last year. The economic growth is a key factor as the ruling party has to face the electorate next year.

Strong Rebound

In the latest year, the real gross domestic product (GDP) has moderated from the previous year’s 7.1 percent growth to 6.6 percent. However, the RBI Governor pointed out that the second half has witnessed a strong rebound citing the turnaround in demand for investment. This was ably helped by a number of factors. This included acceleration in manufacturing, increasing sales uptick, rising pick-up in capacity utilization and a record agricultural harvest. The services sector too witnessed a strong activity.

Patel thinks that a number of factors would continue to drive the growth pace in the current year too. He sees a clearer sign of the revival in the investment climate, and he sees sustaining of such activities in the current year. The banking regulator’s top personality indicated improving demand for gold thus encouraging exports besides lifting fresh investments. On the whole, real GDP growth is predicted to see an expansion of 7.4 percent with balanced risk profile.

Patel pointed out that inflation has eased to hit 4.3 percent in March after hitting 5.2 percent in December due to an unusual increase in vegetable prices. During the address, he also pointed out that headline consumer price inflation generally remained lower than the mid-term estimation of 4 percent since November 2016 when Narendra Modi announced demonetization. He also sees inflation outlook continuing to be influenced by other factors. This included a potential moderation of food prices. However, this depends on the normal monsoon and effective management of food supply.

The BloombergQuint reported that “Countervailing this, upside risks emanate from the distinct hardening bias in crude oil prices, the steady firming up of inflation excluding food and fuel mirroring pick up in domestic demand, and spillovers from financial volatility as markets re-price the path of monetary policy normalization by systemic central banks.”

Neutral Stance

The RBI Governor pointed out that key policy rate was not changed during the April meeting after taking into account the upside risks to inflation. As a result, the committee took a neutral stance on rate, which is six percent. He also noted the government’s fiscal produce efforts that brought down the gross fiscal deficit to 3.5 percent of GDP in 2017-18 by boosting tax revenues and subsidies rationalization. The key point was that this was achieved without any compromise on social sector spending or public investment needs.

Patel pointed out the budgeted gross fiscal deficit of 3.3 percent for the year 2018 – 19. He also noted the government’s acceptance of a debt rule to bring down the debt to 40 percent of the debt-to-GDP ratio by the year 2024-25. However, the current account deficit has widened to 1.9 percent in the first nine-month period of 2017-18 from 0.7 percent in the previous year due to import growth pace compared to exports.

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