There is a Slowdown…GDP Growth at 5% Came as a Surprise: RBI GoUV. Das
NEW DELHI/MUMBAI : Reserve Bank of India (RBI) Governor Shaktikanta Das in an exclusive interview with CNBC-TV18 said India’s gross domestic production (GDP) growth at 5 per cent came as a surprise and was much worse than all predictions.
He also acknowledged that India is going through an economic slowdown, further stating that getting growth back on track should be the highest priority of the government. “We (the RBI) predicted growth at 5.8 per cent. Nobody predicted less than 5.5 per cent. The number came as a surprise, worse than all predictions,” said the RBI Governor.
India’s GDP grew at 5 percent in the first quarter of FY20, the slowest pace in six years. Nominal GDP growth, a measure of GDP without adjusting for inflation, rose just 8 per cent, lowest in the last 7 years, indicating a deep slowdown. Consumption, the bedrock of growth in the past few years, collapsed to an 18-quarter low of 3.1 per cent from 10.6 per cent in the March quarter. “We are analysing as to why the growth figures are so low,” Das said.
In August, the central bank had pared its growth projection for 2019-20 to 6.9 per cent from its June forecast of 7 per cent, which was already downwardly revised from 7.2 per cent earlier in the year. The lower than expected numbers and continuously downward growth spiral has put pressure on the government to bring meaningful reforms to revive growth.
Das indicated that the central bank was warning about the slowdown since the beginning of the year. Talking about early signs of the slowdown, he said, “It was very clear that there are signs of a slowdown happening and to revive investment, to revive demand, MPC (Monetary Policy Committee) decided to go for 25 bps rate cut (in February).”
“After that, 4 MPCs…if you see the minutes of the MPC…the narrative is very clear. There is a slowdown, which was evident and at the last MPC, we therefore, very clearly said that growth seems to be losing traction, and therefore, growth is a matter of highest priority.”
The central bank chief pointed out that while monetary policy has a significant role to play in any economy, all stakeholders including the private sector players have to do their part to power economic growth.
Current account and fiscal deficit could take a hit if oil prices continue to rise after an attack on Saudi Arabian oil facilities over the weekend, the central bank chief said on Monday
“We should allow a few more days to see how the situation plays out before taking a final view…depending on how long it persists it will have some impact on the current account deficit and further perhaps on the fiscal deficit if it lasts longer,” Governor Shaktikanta Das told the CNBC-TV18 news channel.
Mr Das said it was important to see whether alternative sources of supply come up and how soon the installations take to resume operation. US officials blamed Iran for the attack, which damaged the world’s biggest crude oil processing plant and led to a 19 per cent surge in oil prices
Iran denied blame and said it was ready for “full-fledged war”. A jump in oil prices is a negative for emerging markets such as India, which is the world’s third-biggest importer of oil. The country’s current account deficit in the March quarter narrowed on the back of the merchandise trade deficit contraction but a surge in crude prices could balloon the deficit and wreck havoc with the currency.
The partially convertible rupee dropped nearly 1 per cent on Monday to 71.60 per dollar versus its previous close of 70.92. India is also likely to miss its fiscal deficit target for the current financial year, despite receiving an additional dividend from the central bank, five government officials and advisers told Reuters earlier this month, as tax collections have sunk amid a sharp economic slowdown.
Mr Das said the monetary policy committee would continue to focus on growth with inflation expected to stay within the medium term target. Asia’s third largest economy expanded just 5.0 per cent year on year in the June quarter, its weakest pace since 2013, far below the median forecast of 5.7 per cent.
“The numbers definitely look much worse. The number of 5 per cent is a surprise. We are analysing why exactly it has happened,” Mr Das told CNBC TV18.”Growth now is a matter of highest priority, especially with inflation remaining within 4 per cent,” he added.
The retail inflation rate rose to a 10-month high in August but stayed below the central bank’s 4 per cent medium-term target. Analysts believe the slowdown could persist for two or three years while structural reforms are put in place. (With Agency Inputs ).
