Know why RBI has lowered growth projection


Mumbai, Oct 4: It was all clear when RBI Governor Urjit Patel said at the very outset, "We express concern on weakening of the manufacturing sector in the first half of the year. Teething problems linked to GST could be resolved soon. "

His statements came as an alarm bell when he said, "Measures need to be undertaken to support growth andachieve faster closure of output gap. There is need for restarting stalled investment projects. There is need of enhancing ease of doing business,including by further simplification of GST and ensuring faster rollout of affordable housing program.

The Reserve Bank of India (RBI) on Wednesday lowered the country's growth projection for 2017-18, pegging the Gross Value Added (GVA) at 6.7 per cent. The central bank had earlier estimated India's GVA to grow in 2017-18 at 7.3 per cent.

Taking into account various factors during the fiscal, the RBI said: "The projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent, with risks evenly balanced." 

GVA is considered a more accurate index of growth as it excludes the component of taxes and subsidies that go into calculation of the Gross Domestic Product (GDP). 

Pulled down by sluggish manufacturing, growth in the Indian economy, during April to June, fell to 5.7 per cent, clocking the lowest GDP growth rate under the Narendra Modi dispensation. 

While announcing its fourth bi-monthly monetary policy review of the fiscal, the RBI also kept its key interest rate unchanged at 6 per cent citing upside risks to inflation. 

Another factor weighing on the RBI in lowering the growth outlook was the new Goods and Services Tax (GST)

"The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates," the RBI monetary policy statement said. 

"Consumer confidence and overall business assessment of the manufacturing and services sectors surveyed by the Reserve Bank weakened in Q2 of 2017-18," it added. 

News24Bureau with Agencies