Growth likely to exceed 7% in second half, says RBI guv
MUMBAI: In an interview two days after the October monetary policy that left the policy rate unchanged, raised the year-end inflation projection marginally and pared the growth projection for fiscal year 2018, Reserve Bank of India governor Urjit Patel said there are visible signs of upturn and economic growth is likely to exceed 7% in the last two quarters of the year as projected in last week’s Monetary Policy Report.
“We have started seeing the upturn. The Nikkei India Services PMI Business Activity Index rose more than 3 percentage points in September over August; the core sector IIP( index of industrial production) saw a 4.9% rise in August. If you look at some of the high-frequency data such as automobile and two-wheeler sales, you also see the upturn there,” Patel said.
The Indian economy’ s growth in the quarter ended June touched a three-year low of 5.7% on account of the lingering effect of the demonetisation exercise and the run-up to the implementation of the Goods and Services Tax on July 1.
Most economists agree that this period of low growth is transitory and that the economy will see a revival in the second half of the year.
Patel added that the Reserve Bank of India will support growth, but not at the cost of inflation.
According to Patel, while the 2 percentage point on either side of the 4% inflation target gives the central bank some flexibility, RBI’s aim is to keep close to the target itself. “Growth is always there in the Monetary Policy Committee’s scheme of things; we don’t lose sight of that but not at the cost of inflation. However, we have to be careful–we should aim at achieving the inflation target without losing sight of supporting economic growth .”
He also said the real interest rate is important but since it is inherently time varying there cannot be a rigid target for this, and a range is more helpful.
“What is important is that in a capital scarce country like India, the real interest rate needs to be positive enough to encourage healthy growth of financial savings; we get into macro difficulties when real rates on financial savings become negative for a length of time,” he said.
The real interest rate is the interest rate minus the rate of inflation.
Growth is always there in the monetary policy panel’s scheme of things; we don’t lose sight of that but not at the cost of inflation.
URJIT PATEL, RBI governor
MUMBAI: The National Bank for Agriculture and Rural Development (Nabard) has bought an additional 7% stake in Small Industries Development Bank of India (Sidbi) for ₹900 crore from troubled public sector lender IDBI Bank Ltd, according to two people familiar with the matter, including Sidbi chairman Mohammad Mustafa.
This is the largest investment made by the apex rural financial institution so far, and raises its shareholding in Sidbi to 10%.
RBI restricted IDBI Bank’s operations in May after its financial ratios worsened. The bank, which is plagued by bad loans, is trying to sell its non-core assets, and had put its entire 16.25% shareholding in SIDBI on the block in August. The bank’s attempts to find potential buyers received tepid initial response initially. On September 27, it wrote to stock exchanges that it has sold 9.03% in SIDBI, without mentioning the buyers.
According to data shared by Sidbi, existing shareholders bought most of these shares — 6.99% by Nabard, 2.04% by Life Insurance Corp of India, 0.5% by Vi jay a Bank and 0.5% by Can ara Bank. With this, LI Ch olds 14.25% in SIDBI, Vijaya Bank 0.8% and Canara Bank 3.64%.
Email and calls to Nabard did not elicit any response.
According to its FY17 Annual report, Nabard has invested a total of ₹153 crore across nine companies so far.