New Delhi: Want to know just how consistently the Indian economy has been slowing down? Take a look at the bi-monthly outlook of Reserve Bank of India’s monetary policy committee this year.
The outlook is bleak and every meeting of the panel since February has reinforced this.
The RBI Wednesday, while announcing a surprise and unconventional 35 basis points rate cut, further pared India’s growth forecast to 6.9 per cent for the year 2019-20 — the third such downward revision in six months.
In February, the monetary policy committee had projected the economy to grow at 7.4 per cent, but subsequently reduced it to 7.2 per cent in the April review and to 7 per cent in the June review.
The 6.9 per cent growth forecast is lower than the 7 per cent growth projected by the Economic Survey for 2019-20 and may be further revised downwards in the coming months if one reads between the lines of the statement issued by the RBI committee.
‘Boosting aggregate demand assumes highest priority’
The committee made the 6.9 per cent projection “with risks somewhat tilted to the downside”.
“Various high frequency indicators suggest weakening of both domestic and external demand conditions. The Business Expectations Index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q2, although a decline in input costs augurs well for growth,” the RBI committee’s statement said.
“Boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate.”
The tonality of the statement is in stark contrast to the December monetary policy review that was full of optimism. At that time, the committee had said there has been significant acceleration in investment activity and high frequency indicators suggested that it was likely to be sustained while credit off-take from the banking sector has strengthened.
It had projected the economy to grow at 7.5 per cent in the first half of 2019-20 while maintaining a status quo on rates.
The February monetary policy — the first one helmed by RBI Governor Shaktikanta Das — cautioned against some of the downside risks, but remained optimistic about the growth in the economy. It projected the economy to grow at 7.4 per cent in 2019-20 with “risks evenly balanced”, while announcing a 25 basis points rate cut.
The April monetary policy had said there were signs of weakening domestic investment activities as reflected in a slowdown in production and imports of capital goods.
The moderation of growth in the global economy might impact India’s exports, it had warned. On the positive side, it had pointed out that private consumption has remained resilient. While announcing another 25 basis points cut, it downgraded the growth projection to 7.2 per cent with “risks evenly balanced”.
However, since then, concerns over growth have come to the fore.
‘Current slowdown is cyclical, not structural’
The Indian economy slowed to a five-year low of 5.8 per cent in the fourth quarter of 2018-19, data released by the Central Statistics Office in May revealed.
The full-year growth for 2018-19 also slowed down for the second consecutive year to 6.8 per cent as against 7.2 per cent in 2017-18 and 8.2 per cent in 2016-17.
Along with investment, private consumption slowdown also came to the fore as reflected by shrinking sales of automobile and consumer durables.
The June monetary policy further lowered the growth projection to 7 per cent with “risks evenly balanced” and said that domestic investment activities have weakened and overall demand has been weighed down partly by slowing exports.
Weak global demand due to escalation in trade wars may further impact India’s exports and investment activities. Further, private consumption, especially in rural areas, has weakened in recent months, it had said.
Addressing a press conference Wednesday after the monetary policy review, Das said the 6.9 per cent growth forecast has been made with risks to the downside.
Das termed the current slowdown as a “cyclical slowdown” and not really a deep structural slowdown, but stressed the need for structural reforms to be undertaken.
He added that the government would take necessary measures required to address the growth slowdown in the economy.
Aditi Nayar, principal economist, ICRA Ltd, said the unconventional 35 bps rate cut is a clear signal that the “increasing evidence of a pervasive slowdown in economic growth has emerged as the MPC’s (monetary policy committee) chief concern, given that it expects inflation to remain under its medium-term target”.
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