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RBI says economy on the mend; sees growth gaining momentum

PTI:  December 07, 2017

Mumbai: The economy is on an "uptick from now", the Reserve Bank said on Wednesday even as it retained the GDP growth estimate for the current financial year at 6.7 per cent.

The comments comes within days of the official data reporting an improved set of macro-growth numbers in the second quarter of 2017-18.

In the Fifth Bi-Monthly Monetary Policy Review for 2017- 18, where it left the key policy rate unchanged, the central bank sounded confident of the economy achieving its previous growth estimate of 6.7 per cent on a gross value-added basis, with risks evenly balanced.

Answering a query on the growth projection for the second half of the fiscal year, RBI executive director Michael Patra said: "It is going to be 7 and 7.8 (per cent in the third and fourth quarters, respectively). So, we are on an uptick from now." 

The Reserve Bank of India had sharply revised down its growth projection to 6.7 per cent in the October review, from the earlier estimate of 7.3 per cent, after the first quarter GDP faltered to a three-year low at 5.7 per cent.

The after-effects of the note-ban, which saw withdrawal of 86 per cent of the currency in a cash-dominated economy in November last year, and the disruption caused by the Goods and Services Tax (GST) roll out in July were blamed for the sluggish growth numbers.

The dip in growth to a three-year low in the June quarter had also led the finance ministry to think about a stimulus package, which looks unlikely now with the second quarter number printing at 6.3 per cent amidst fiscal deficit crossing 96.1 per cent as of October-end.

RBI Governor Urjit Patel said the hectic activity in the primary share issuances, recent reform measures by government, a climb-up in the ease of doing business ranking by the World Bank, recapitalisation of state-run banks and efforts to resolve the issue of bad loans under the provisions of the insolvency code bode well for the economy in the short to medium-term.

The frenetic initial public offer market will add to demand for credit in the short-run and boost the growth potential in the medium-term, ease of doing business rankings will help attract foreign direct investment and bank recapitalisation will help enhance allocative efficiency of resources, he said.

"In the view of MPC (monetary policy committee), all these factors should help to create conducive financial conditions for nurturing higher growth," Patel said.

In the policy, RBI said shortfalls in kharif production and rabi sowing pose downside risks to the outlook for agriculture, while the pick-up in credit growth in recent months is an overall positive.

While there has been weakness in some components of the services sector, an internal survey of RBI indicates that the services and infrastructure sectors are expected to see improvement in demand, financial conditions and the overall business situation in the fourth quarter, RBI said.

The central bank on Wednesday kept the key rates unchanged as expected but raised its inflation forecast for the remainder of the year to 4.3-4.7 per cent.

The 6-member Monetary Policy Committee, headed by Patel, kept the repo rate unchanged at 6 per cent and reverse repo at 5.75 per cent with a vote of 5:1.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.