MUMBAI: RBI governor Shaktikanta Das said that the country is at the threshold of a major structural shift in its growth trajectory and is moving towards an annual growth of 8% in a sustained manner. He said that such a growth outlook gives RBI the space to ‘single-mindedly and unambiguously’ focus on inflation.
While Das’s economic outlook is the most optimistic it has been in recent years, the message – coming on the back of a cautionary observation on credit growth outpacing deposits – rules out any near-term interest rate reduction.
Das also said that the central bank’s nowcasting team is projecting that growth in Q1FY25 could be higher than the 7.3% projected by the monetary policy committee. Supporting the higher growth forecast was the continuation of the Q4FY24 growth momentum in Q1FY25, a pick up in rural consumption, favourable monsoon and a rise in external demand.
On inflation, Das said that after spiking in the wake of the Ukraine war, inflation in India has improved from 7.8% in April 2022 to 4.7% in May this year, thanks to measures taken by RBI and govt. He said maintaining a 4% inflation target is crucial as this level supports a healthier economy and financial system.
“But inflation is moderating at a slow pace. We are still at 4.7%, within striking distance of 5%. One severe weather event and vegetable prices may go up and we will be at 5%. So, we must navigate our path towards the 4% inflation target with clear and unambiguous focus and commitment to bring down the inflation to 4%. There cannot be any wavering; there cannot be any distractions at this stage,” said Das.
Das likened RBI’s current inflation battle to a game of chess in which there can be no wrong moves. “In cricket, you play one shot very badly, but you can play the next shot very well. But chess is one game where if you make one wrong move, you can lose the game. It is like that in the battle against inflation. We cannot afford to make any wrong move,” said Das.
Pointing out the 8.3% average growth in the last three financial years, Das said that last year, India contributed 18.5% to global growth, with the IMF projecting a further increase. He said that the growth was driven by structural reform, which included GST, bankruptcy laws, and a flexible inflation-targeting regime under the RBI’s monetary policy.
Das expressed confidence about achieving 7.2% growth this year despite facing risks such as weather events, geopolitical conflicts, global trade fragmentation, and financial sector volatility. On the positive side, global growth is improving, with the IMF projecting a 3.2% increase for this year and the next. On the debate over which sector should drive growth, Das said that India’s growth story must be multi-sectoral, driven by manufacturing, services, agriculture, and exports. “As a large economy, it cannot rely on a single sector for growth. The growth story has to be sustained by multiple sectors,” said Das.
