MUMBAI: RBI Governor Shaktikanta Das said the country is on the cusp of a major structural change in its growth trajectory and is moving towards 8% annual growth in a sustainable manner. He said such a growth outlook gives the RBI the scope to focus on inflation “single-mindedly and unequivocally”.
While Das's economic outlook is the most optimistic in years, the message – which comes after a cautionary observation that credit growth is outpacing deposits – rules out any short-term rate cuts.
Das also said that the central bank's nowcasting team expects growth in Q1FY25 to be higher than the 7.3% forecast by the Monetary Policy Committee. The higher growth forecast was supported by the continuation of the Q4FY24 growth momentum in Q1FY25, a revival in rural consumption, a favourable monsoon and a pick-up in external demand.
On inflation, Das said that after the sharp rise 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 the actions of the RBI and the government. He said maintaining an inflation target of 4% is crucial as this level supports a healthier economy and financial system.
“But inflation is coming down slowly. We are still at 4.7%, within reach of 5%. A bad weather and a rise in vegetable prices could make us at 5%. So we have to go on our way to the 4% inflation target with a clear and unequivocal focus and commitment to bring inflation down to 4%. There can be no wavering at this stage, there can be no distraction,” Das said.
Das compared the RBI's current fight against inflation to a game of chess in which there can be no wrong moves. “In cricket, you play one shot very badly but the next one you can play very well. But in chess, if you make one wrong move, you can lose the game. It is the same in the fight against inflation. We cannot afford to make one wrong move,” Das said.
Pointing to the average growth of 8.3% in the last three fiscal years, Das said India contributed 18.5% to global growth last year, with the IMF forecasting a further increase. He said the growth was driven by structural reforms, which included the GST, bankruptcy laws and a flexible inflation targeting regime under the RBI's monetary policy.
Das expressed confidence of achieving 7.2% growth this year, although there are risks such as weather events, geopolitical conflicts, fragmentation of global trade and volatility in the financial sector. On the positive side, global growth is improving, with the IMF forecasting a 3.2% rise this year and next. On the debate over which sector should drive growth, Das said India's growth story must be multi-sectoral and driven by manufacturing, services, agriculture and exports. “As a large economy, it cannot rely on a single sector for its growth. The growth story must be driven by multiple sectors,” Das said.
While Das's economic outlook is the most optimistic in years, the message – which comes after a cautionary observation that credit growth is outpacing deposits – rules out any short-term rate cuts.
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Das also said that the central bank's nowcasting team expects growth in Q1FY25 to be higher than the 7.3% forecast by the Monetary Policy Committee. The higher growth forecast was supported by the continuation of the Q4FY24 growth momentum in Q1FY25, a revival in rural consumption, a favourable monsoon and a pick-up in external demand.
On inflation, Das said that after the sharp rise 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 the actions of the RBI and the government. He said maintaining an inflation target of 4% is crucial as this level supports a healthier economy and financial system.
“But inflation is coming down slowly. We are still at 4.7%, within reach of 5%. A bad weather and a rise in vegetable prices could make us at 5%. So we have to go on our way to the 4% inflation target with a clear and unequivocal focus and commitment to bring inflation down to 4%. There can be no wavering at this stage, there can be no distraction,” Das said.
Das compared the RBI's current fight against inflation to a game of chess in which there can be no wrong moves. “In cricket, you play one shot very badly but the next one you can play very well. But in chess, if you make one wrong move, you can lose the game. It is the same in the fight against inflation. We cannot afford to make one wrong move,” Das said.
Pointing to the average growth of 8.3% in the last three fiscal years, Das said India contributed 18.5% to global growth last year, with the IMF forecasting a further increase. He said the growth was driven by structural reforms, which included the GST, bankruptcy laws and a flexible inflation targeting regime under the RBI's monetary policy.
Das expressed confidence of achieving 7.2% growth this year, although there are risks such as weather events, geopolitical conflicts, fragmentation of global trade and volatility in the financial sector. On the positive side, global growth is improving, with the IMF forecasting a 3.2% rise this year and next. On the debate over which sector should drive growth, Das said India's growth story must be multi-sectoral and driven by manufacturing, services, agriculture and exports. “As a large economy, it cannot rely on a single sector for its growth. The growth story must be driven by multiple sectors,” Das said.
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