Reserve Bank Governor Shaktikanta Das said here Monday that the decline in growth rate to 5 per cent in the first quarter (April-June of 2019) is “a surprise” and the central bank is analysing “why exactly it has happened”.
The Governor also said the RBI is monitoring 50 top non-banking financial companies (NBFCs) and, in the case of a few NBFCs, it’s doing a “further deep dive” to see exactly what is happening in the sector.
“The numbers definitely look much worse because in the first quarter we had projected 5.8 per cent and I think almost everybody had projected not below 5.5 or so. But the number of 5 per cent is a surprise. So we are analysing why exactly it has happened,” he told CNBC-TV18.
“There is a slowdown, which was evident and at the last MPC we very clearly said that growth seems to be losing traction and, therefore, growth is a matter of highest priority,” Das said. “The signs of slowdown have been visible for the past few months and that is why we are cutting rates. Now when things will turn and how much it will turn, the wheel will turn upwards, I don’t want to make an estimate but because there are many things which are still playing out.” In this context, he cited the Saudi oil crisis, the trade issue between US and China.
“Let us also remember that…(in) all advanced economies whether it is the US or Eurozone or Japan — everywhere Q2 growth is lower than Q1, there is deceleration. I am not trying to sort of justify our slowdown through the prism of the global slowdown although global slowdown does impact our domestic growth and results in slowdown, we have domestic issues also,” he said.
“I think with the right measures taken, things should improve. It is positive trend that the government has come out with various steps. they are responding very fast and I don’t think we have learned last from the government with regard to dealing with the current economic situation. My expectation is…it will be a continuous process and the (government) would definitely be dealing with other challenges, a few more reforms we have said in our annual report also, a few structural reforms also,” he said.
On the financial sector crunch, Das said: “After the failure of the IL&FS, NBFCs have been under stress. The RBI is very much concerned about it…we are keeping a close watch. We are monitoring about 50 top NBFCs including a few HFCs (housing finance companies) which cover roughly about 70-75 percent of the loan outstanding of the banks.”
Das said there is a strong case for NBFCs to do an asset quality review, a forensic audit and declare their results.
On inflation, Das underlined the cyclical nature of food prices within a year. “There are months when food prices, particularly, vegetable prices or fruit prices, tend to be higher and then they soften. On the positive side, what has happened is that the monsoon shortfall – in fact, overall, at the national level there is a surplus now. Having said that, we must recognise that there is a deficit in east and northeast India and, to some extent, in the northwest. The surplus is about 3 per cent and (on) the net area sown, the shortfall is just about 5-6 percent which I think, in the coming weeks, will be made up,” he said.
On the role of monetary policy, Das said: “Whether it is a limited role or unlimited role, I don’t want to go into specifying…but monetary policy can impact certain areas of the economy…we have already articulated growth is a matter of priority and what this forthcoming monetary policy view will take, I cannot and would not like to give an advanced signal.”
Regarding the fiscal situation, the Governor said: “I have already stated that we have to take a granular and nuanced view of public sector borrowing…Whatever borrowing is there for capital expenditure should be looked at differently. The borrowing for revenue expenditure has to be viewed differently. As far as growth is concerned…I think the government has come out with three doses of announcements. I would believe that government is fully aware of these fiscal challenges.”