RBI Governor Shaktikanta Das on Monday said the central bank would do “whatever is necessary” to address growth slowdown, spikes in inflation as well to ensure good health of banks and non-bank lenders.
“Growth is an issue of discussion in India and global growth is also an issue of discussion because that does impact. For a moment, I am not implying that slowdown that we have seen in India is entirely due to global factors, but it does impact growth prospects for India,” Das said at the India Economic Conclave.
Noting that there is a need for an “informed and objective discussion” on the country’s economy, Das said the Reserve Bank of India (RBI) saw economic growth slowdown in February, prompting it to cut rates ahead of the curve and wondered why markets were surprised with the decision to pause rate reduction in the December policy.
After cutting repo rate five times in 2019 to 5.15 per cent, the RBI kept the rate unchanged on December 5. GDP growth rate declined further from 5 per cent to a six-year low of 4.5 per cent in the September quarter and retail inflation rose to 5.54 per cent, much above the RBI’s 4 per cent medium term target.
Earnings analysis shows signs of revival in investment cycle
While the issue of whether the RBI is ahead of the curve in its rate-cutting action is a matter of debate, the central bank’s latest earnings analysis of 1,539 manufacturing companies ahead of last week’s policy review has an optimistic ring to it. The survey pointed to these firms putting over 45 per cent of the funds available with them for fixed assets in the first half of the fiscal, as against 18.9 per cent in the year-ago period, which the RBI Governor said points to a clear process of balance sheet de-leveraging at corporates, banks and non-banks, which will aid in getting in higher growth in future.
“Both the government and the RBI have acted in time … we have acted a little bit ahead of time in terms of reducing our policy rates. As early as February this year, the RBI saw that there was a growth slowdown, we saw that a momentum for slowdown was building up, so started cutting rates this year,” he said.
“While taking a pause, we very carefully and very definitely said there is space for further monetary policy action but the timing will have to be decided in a manner that its impact is optimum and its impact is maximised,” Das said. While maintaining an accommodative stance of the policy, the RBI had earlier said it would be waiting for upcoming data before taking a final call.
Das said investments in infrastructure by both the Centre and states are critical to push up growth. “I was looking at the data of capital expenditure of the states, it has remained stagnant around 2.6-2.7 per cent of their GSDP (gross state domestic product) over last few years and the infrastructure spending, capital expenditure of state governments also need to be stepped up,” he added.
The RBI Governor also said there is a need to focus more on manufacturing, in order to push up the growth process, and asked Indian companies to integrate with the global supply chain to ensure that exports go up.
He said the RBI did a survey as well as earnings analysis of 1,539 manufacturing companies ahead of last week’s policy review, which showed early signs of a revival in investment cycle. The survey pointed out that the companies put over 45 per cent of the funds available with them for fixed assets in the first half of the fiscal, as against 18.9 per cent in the year-ago period. There is a clear process of balance sheet de-leveraging at corporates, banks and non-banks, which will aid in getting in higher growth in the future, he said.
The RBI Governor also said there is a need for “timely and coordinated” response by all emerging and advanced economies in the world to take the right policies for lifting the global economy.
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