Amid an economic slowdown, Reserve Bank of India Governor Shaktikanta Das on Friday exuded confidence that the second-quarter GDP figures will be better than the previous ones as the government has begun spending again.
Attributing the 5 per cent GDP growth in Q1, which is a six-year low and is even lower than that of Pakistan’s 5.4 per cent, to very low government spending, Das said with the Centre opening its coffers again growth should pick up going forward.
The central bank chief was speaking at the opening session of the India Today Conclave when he made the remarks.
Das said the central bank had sensed a slowdown in the economy in February and that the situation is the same in “almost all advanced economies”. “RBI had noticed the signs of a slowdown as early as February this year,” he said.
“The growth has slowed down across the globe. The second quarter in almost all advanced economies has shown signs of deacceleration. Almost all central banks across the globe are in an accommodative mode and are cutting interest rates,” he added.
While he reiterated the possibility of more rate cuts if incoming data support such a move, Das also warned against government initiating any fiscal expansion, saying it has no legroom to do so given the high deficit numbers.
“We can’t go back to Fed like rates. We don’t know what a real effective interest rate will be like, because the law of the land mandates the RBI to ensure price stability. But how much lower we can go down depends upon the data we gather on the economy. India can’t be compared with advanced economies. I want to assure that we are not targeting a 2 per cent growth. In India, inflation target is 2 per cent, while in advanced economies, inflation is almost zero,” he said.
Das also called for urgent structural reforms especially inland and labour as well as entrepreneurial areas.
Welcoming the Finance Ministry’s decision to slash effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic firms, Das said, “This is a bold and welcome decision. During Arun Jaitley’s tenure as FM (Finance Minister), the corporate tax was reduced from 30 to 25 per cent. This was one of the hurdles, and the measures will help revive the economy.”
Sharing his views on the autonomy of the central institution, Das said “it’s important to explain your position and not stop conversation”.
“Difference of opinions between the monetary authority and the government happens in every country, and when it happens, it’s important to explain your position and not stop conversation. Because the government is sovereign, and the RBI is a part of that,” Das said.
“So far as the decision making concerned, I can tell you with confidence that the RBI has full autonomy on taking decisions related to the economy,” he added.
Weak manufacturing and consumption numbers dragged the country’s GDP growth to a six-year low of 5 per cent in the first quarter (April-June) of the current fiscal, data released by National Statistical Office (NSO) has shown. The GDP growth rate has now slowed for the fifth consecutive quarter with the previous low recorded at 4.3 per cent in March 2013.
(With PTI inputs)