At the event, the Governor delivered an address titled “India at an Inflexion Point: Some Thoughts”, where he dealt with four major themes:
- India’s growth prospects and the approach needed going forward
- Recent developments in inflation and monetary policy
- Issues relating to strengthening of the financial sector
- Expectations from the financial sector
GDP: “Need to cut down on the noise”
On the issue of growth, Das noted that there was a need to cut down the noise on the India growth debate, and that there is now a need analyse where exactly India’s growth story stands. The economy has rebounded strongly from Covid disruptions, growing at an impressive 8.3% in the past three years, he pointed out. The high growth forecasts for Indian economy by international agencies and the RBI are converging, he added.
He also acknowledged that there are ongoing discussions on whether the high growth rate being forecast for India would actually materialise.
Governor Das defended the Q1 GDP print which undershot forecasts, saying that the real drivers of the economy are gaining momentum despite the below-expectation growth numbers for the quarter. This gives the confidence to say that the India growth story remains intact, he said.
“Numbers muted, but India story intact”
Private consumption, which is the mainstay of aggregate demand with around 56% share of GDP, has strongly rebounded to an impressive 7.4% from a feeble 4% in the second half of the previous fiscal, Das observed. This, along with latest FMCG sector data, confirms the revival of rural demand, he said.Investment, the other major driver of growth accounting for 35% of GDP. grew by 7.5%, keeping up with the recent momentum in the economy, Das noted, arguing that it means more than 90% of the GDP (consumption + investment) grew at a robust pace, during the quarter.The headline Q1 number, Das said, came lower because of muted public spending both by the Central and the state govts, perhaps due to the elections. Without this, the GDP growth for the quarter would have worked out to 7.4%, he insisted.
So, all in all, consumption and investment demand are growing in tandem, and govt capex (Centre + states) are likely to pick up pace in the remaining quarters of the fiscal, Das said.
Some key numbers
Apart from these two demand-side drivers that are already doing well, the supply-side factors also stand to do well going forward, Das said. While agri was modest in Q1, it will do better on good monsoon, good kharif sowing and good developing conditions for the rabi crop, he predicted.
According to the RBI Governor, industry and services, which grew 7.4% and 7.7% in Q1, underscored the continued strength of economic activity. Construction activity, which is an important segment of any growth assessment, remained robust, growing at 10.5%, Das pointed out.
It may be noted here that bank credit to agri and allied activities, an important marker, remained robust, growing by 18.1% year on year. Credit to industry grew by 10.2% YoY during the quarter. Within Industry, credit to MSMEs, an important segment, grew at over 14% year on year.
Das said that the enhanced credit flow to industry along with an all-time high capacity utilisation in the manufacturing sector (76%) points to an upside in the investment cycle as reflected in the NSO data. It is evident that India is on a sustainable growth path, he added.
Strong bank balance sheets have created good conditions for expansion of capex, Das said. Overall, the RBI’s GDP forecast of 7.2% for 2024-25 does not appear out of place, he added.
While there is now some balance between inflation and growth, there is a need to maintain price stability to support growth over the medium to longer term, Das cautioned. The pace of disinflation has been affected by food food price volatility, but the good monsoon has raised fuelling optimism that food inflation outlook could become favourable as the year progresses, he said.