RBI lowers FY20 growth estimate to 7 per centhttps://indianexpress.com/article/explained/rbi-lowers-fy20-growth-estimate-to-7-per-cent-5768994/

RBI lowers FY20 growth estimate to 7 per cent

Unveiling the monetary policy, the RBI said, “In the April policy, GDP growth for 2019-20 was projected at 7.2 per cent — in the range of 6.8-7.1 per cent for H1 and 7.3-7.4 per cent for H2 — with risks evenly balanced.

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Gross fixed capital formation (GFCF) growth declined sharply to 3.6 per cent, after remaining in double digits in the previous five quarters. Private consumption growth also moderated, the RBI said.

The Reserve Bank of India on Thursday lowered India’s GDP growth estimate to 7 per cent for the year 2019-20 from 7.2 per cent that it forecast in April this year.

Unveiling the monetary policy, the RBI said, “In the April policy, GDP growth for 2019-20 was projected at 7.2 per cent — in the range of 6.8-7.1 per cent for H1 and 7.3-7.4 per cent for H2 — with risks evenly balanced. Data for Q4 of 2018-19 indicate that domestic investment activity has 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 activity. Further, private consumption, especially in rural areas, has weakened in recent months,” the Monetary Policy Committee of the RBI said. However, on the positive side, political stability, high capacity utilisation, the uptick in business expectations in Q2, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity, it said.

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“Taking into consideration various factors and the impact of recent policy rate cuts, GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7.0 per cent — in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 — with risks evenly balanced,” it said.

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“The MPC noted that growth impulses have significantly weakened as reflected in a further widening of the output gap,” it said. On May 31, 2019, the National Statistical Office (NSO) released quarterly estimates of GDP for Q4 of 2018-19 and provisional estimates of national income for 2018-19. GDP growth for 2018-19 has been estimated at 6.8 per cent year-on-year (y-o-y), down by 20 basis points from the second advance estimates released on February 28, pulled down by a downward revision in private final consumption expenditure (PFCE) and moderation in exports. Quarterly data show that domestic economic activity decelerated sharply to 5.8 per cent in Q4:2018-19 from 6.6 per cent in Q3 and 8.1 per cent in Q4 of 2017-18.

Gross fixed capital formation (GFCF) growth declined sharply to 3.6 per cent, after remaining in double digits in the previous five quarters. Private consumption growth also moderated, the RBI said. “The drag on aggregate demand from net exports increased in Q4 due to a sharper deceleration in exports relative to imports. However, the overall slowdown in growth was cushioned by a large increase in government final consumption expenditure (GFCE),” it said.

On the supply side, agriculture and allied activities contracted, albeit marginally, in Q4 of 2018-19 due to a decline in rabi production. According to the third advance estimates, foodgrains production at 283.4 million tonnes for 2018-19 was lower by 0.6 per cent compared with the previous year mainly due to lower production of rabi rice, pulses and coarse cereals. However, there has been a catch-up in foodgrains production relative to earlier estimates.