Growth may accelerate in FY20: Patel

RBI Gov. sees upside risks to inflation from hardening crude and food prices

Mumbai 04/10/2016 Reserve Bank of India Governor Urjit Patel at a press conference in Mumbai on Tuesday. Photo: Vivek Bendre

The Indian economy gave a resilient performance in 2017-18 and the country’s growth is expected to accelerate next fiscal, RBI Governor Urjit Patel has said.

Although the real GDP growth had moderated to 6.6% from 7.1% a year ago, there was a strong rebound in the second half of the year on the back of a turnaround in investment demand, Dr. Patel said.

‘Resilient performance’

The Indian economy gave a resilient performance in 2017-18. This was supported by an acceleration in manufacturing, rising sales growth, a pick-up in capacity utilisation, strong activity in the services sector and a record agricultural harvest, the RBI Governor added.

“Several factors are expected to help accelerate the pace of growth in 2018-19. There are now clearer signs that the revival in investment activity will be sustained,” he said.

Global demand has been improving, which should encourage exports and boost fresh investments, Dr. Patel said, adding that on the whole, real GDP growth was expected to expand at 7.4% in 2018-19, with risks evenly balanced.

Addressing the International Monetary Finance Committee here, Dr. Patel said since November 2016, headline consumer price inflation had generally remained below the medium-term target of 4%.

An unusual spike in vegetables prices pushed up inflation to a recent peak of 5.2% in December, but it eased in subsequent months to reach 4.3% in March, he said.

Several factors were likely to influence the inflation outlook, including a possible moderation in food prices if the monsoon turned out to be normal and was supported by an effective food supply management.

“Countervailing this, upside risks emanate from the distinct hardening bias in crude oil prices, the steady firming up of inflation excluding food and fuel mirroring pick up in domestic demand, and spillovers from financial volatility as markets re-price the path of monetary policy normalisation by systemic central banks,” he said.

Noting that risks to inflation are tilted to the upside, the monetary policy rate was kept unchanged at 6% in April 2018 with a neutral stance, he said.

Dr. Patel also said that the Goods and Services Tax (GST) had reformed the system of indirect taxes.