The Reserve Bank of India (RBI) has raised red flag on the economy — on growth, exports, consumption and investments.
When full details on real activity becomes available, the Central Statistics Office’s growth estimates for 2014-15 could be revised downwards, Governor Raghuram Rajan cautioned on Tuesday in the first bi-monthly monetary policy statement of 2015-16.
The RBI projected growth of 7.8 per cent in 2015-16 will be barely 30 basis points faster than in 2014-15 (7.5 per cent). The persisting contraction in consumer durables production for over two years could be reflecting the underlying weakness in consumer demand, it said.
The RBI also warned that capital goods output has been relatively lumpy and volatile, and “more positive readings are needed to be confident about a durable pick-up in investment demand”. Export performance has been progressively weakening and contraction set in on both non-oil and petroleum product exports since December 2014, the Governor said.
MonsoonsInitial estimates indicate that as much as 17 per cent of the sown area under the rabi crop, Dr. Rajan said, may have been affected by unseasonal rains and hailstorms.
Retail inflation, he warned, firmed up for the third successive month in February. Food inflation did not fall despite seasonal decline in prices of vegetables and fruits as the prices of protein-rich items — such as pulses, meat, fish and milk — remain elevated.
Going forward, further rate cuts would depend among other factors on acceleration of policy efforts to make available key inputs such as power and land, repurposing of public spending from poorly targeted subsidies towards public investment and on reducing the pipeline of stalled investment, he said.
The Governor also said that though the national accounts statistics suggest consumption demand for services is robust, and purchasing managers are reporting new orders, a variety of coincident indicators — such as railway and port traffic, domestic and international passenger traffic, international freight traffic, tourist arrivals, motorcycle and tractor sales as well as bank credit and deposit growth — remain subdued.
Positive sideOn the positive side, the Governor highlighted exports of services have helped to hold down the current account deficit (CAD). As a result, , capital inflows — mainly portfolio flows into domestic debt and equity markets and foreign direct investment — have exceeded the external financing requirement and enabled accretion to the foreign exchange reserves which reached an all-time peak of $343 billion as on April 3, 2015.
Compression in imports of petroleum products has narrowed the trade deficit in the last three months to its lowest level since 2009-10. Gold imports have remained contained.
He also noted that manufacturing appeared to be regaining momentum and said that the outlook for growth was improving gradually.
Lending rate cuts by banks would improve financing conditions for the productive sectors of the economy, he said. The RBI projected retail inflation to moderate to around four per cent by August but firm up to reach 5.8 per cent by the end of 2015.
Firms are reporting a substantial easing of input price pressures and inflation expectations of households are in single digits, although they too exhibit some firming up during the January-March quarter, the Governor said.
