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photo-article-logo Sunday, 22 December 2024

RBI slashes growth projection, governor Das says second half of 2024-25 financial year will be better

Central bank cuts FY25 GDP growth forecast to 6.6% from 7.2%; optimistic about H2 growth despite Q2 GDP hitting 7-quarter low

Our Web Desk & PTI Published 06.12.24, 03:09 PM

Reserve Bank Governor Shaktikanta Das on Friday exuded confidence that growth in the second half of the fiscal year would be much better than the April-September period even as the central bank trimmed growth projection for FY25 to 6.6 per cent.

The downward revision in growth forecast follows the second quarter GDP print of 5.4 per cent, the lowest in the last seven quarters. It was also below 6.7 per cent growth recorded in the first quarter (April-June).

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India recorded a growth of 6 per cent in the first half (April-September period) of the current fiscal.

The Reserve Bank of India on Friday decided to keep the policy rate unchanged for the 11th time in a row. 

Announcing the fifth bi-monthly monetary policy for the current financial year, RBI Governor Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent while keeping policy stance unchanged at neutral.

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Agriculture activity/ Reuters

The better projection for the second half is based on healthy kharif crop production, higher reservoir levels and better rabi sowing. Besides, industrial activity is expected to normalise and recover from the lows of the previous quarter. Mining and electricity are also expected to normalise post the monsoon-related disruptions.

With regard to inflation, Das said, it has to be brought down in the interest of sustainable growth. "The horse (inflation) has made a valiant effort to bolt out, our effort is to keep it on tight leash... there is no scope for knee-jerk reactions. We need more evidence before we take any action and the action has to be timely," he said in an interaction with the media.

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Industrial activity/ Shutterstock

The MPC remains committed to restoring the balance between the inflation and growth which got unsettled recently, he said, adding, RBI will use its various policy instruments to create the conditions for restoring the inflation growth balance.

The RBI sharply cut the GDP growth projection to 6.6 per cent from the earlier level of 7.2 per cent, while raising inflation target to 4.8 per cent from the previous projection of 4.5 per cent for the current fiscal.

Earlier, economists had revised downwards India's growth projections for the fiscal after a marked slowdown in the economy and prophesied that it would be hard to attain a growth rate above 7 per cent for the fourth straight year. Last week, data released by RBI showed gross domestic product grew 5.4 per cent in the July-September quarter, marking a seven-quarter low and falling below consensus estimates and the Reserve Bank of India's (RBI) projection of 7 per cent.

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Mining activity/ Reuters

Goldman Sachs economists Santanu Sengupta and Arjun Varma revised their projection for the fiscal to 6 per cent, down from 6.4 per cent. Barclays lowered its estimate to 6.3 per cent, citing the weaker-than-expected second-quarter data. Crisil chief economist D.K. Joshi noted the risks. "A sharper-than-expected growth slowdown in Q2 has tilted risks to our outlook of 6.8 per cent for the current fiscal downwards," he said.

Emkay Global revised its forecast to 6 per cent from 6.5 per cent, citing a lacklustre manufacturing sector and weak consumer demand. "Despite likely sequential improvement ahead, the slowdown in consumption and industrial activity remains a concern," said Madhavi Arora, chief economist at Emkay Global.

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Shutterstock

Stepping up its attack on the government over the GDP growth slowing to a near two-year low, the Congress Tuesday said Prime Minister Narendra Modi's "voodoo economic policies" put India in the middle of a vicious economic cycle of low growth, no jobs, low income and high prices. 

Congress president Mallikarjun Kharge alleged that every single aspect of the economy has been ruined by the Modi government. "The growth rate is declining. There are no jobs for the youth. The condition of the manufacturing sector is worrying. Inflation has drained the pockets of the common people. The gap of economic inequality is widening," he said in a post on X.

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