On a day when official data showed further weakening of the industrial sector, Reserve Bank Governor Raghuram Rajan said here on Friday that the Indian economy was expected to weaken further and a recovery was likely only beyond December.
He cautioned that despite the sharp surge in sentiment in the economy, captured by consumer and investor confidence surveys, including by the Reserve Bank, a pick-up in investments would take time.
“We have to accept that recoveries are not straight-line recoveries … there is volatility around the general trend … investment is yet to pick up on a strong basis, [though] we are seeing signs of the coming together of conditions for it [including a stable government that has signalled pro-investments initiatives] … there will be slight weakening compared with the first quarter in the second and third quarters, but beyond that we will hopefully see some strengthening of the economy,” he told The Hindu in an interview here.
Dr. Rajan is here to attend the International Monetary Fund (IMF) and World Bank Group annual meetings.
Slowing outputOfficial data released in New Delhi on Thursday showed factory output growth slowed further to 0.4 per cent in August, marginally lower than the 0.5 per cent in July.
Manufacturing growth shrunk further by (-)1.4 per cent compared to (-)1.1 per cent in July. Capital goods production slid sharply by (-)11.3 per cent against (-)3.8 per cent reflecting an absence of investment activities. Consumer goods production since April is down (-)4.9 per cent against (-)1.6 per cent, indicating household demand continues to weaken sharply.
“Even with all the sentiment in the world, it takes time for investment intentions to pick up and investors to put the assets on the ground. Consumer demand can quickly pick up but it is affected by new jobs,” Dr. Rajan said. In its Monetary Policy Report released on September 30, the Reserve Bank had said that consumer expectations were at the highest level since the financial crisis in 2008 and business expectations were at an 11-quarter high. The National Democratic Alliance government had announced a number of initiatives to improve the ease of doing business in India to back up Prime Minister Narendra Modi’s invitation to global manufacturers to “Make in India.”
It, however, said that its own expectations of conditions conducive to revival in investments, fiscal consolidation and sustained disinflation remained “broadly unchanged” from the pre-election level because of which it was not revising upwards its April projection for 2014-15 growth of 5.5 per cent.
