RBI cuts growth rates to 6.7%

RBI has revised its FY18 growth projection for the Indian economy to 6.7 per cent from 7.3 per cent stating that the implementation of GST has likely delayed the revival of investment activity.

Calling for additional steps to support growth, RBI has suggested few measures like restarting stalled investment projects, particularly in the public sector, enhancing ease of doing business, including by further simplification of GST and ensuring faster roll-out of the affordable housing program with time-bound single-window clearances and rationalisation of excessively high stamp duties by states.

RBI said the deceleration in economic activity would have been more pronounced, but for the front-loading of public spending which boosted government consumption and provided a cushion.

Private consumption demand, still the fulcrum of overall demand in the economy, started losing momentum in Q4 of FY17 and slumped further in Q1 of FY18.

“We express concern on the loss of momentum in the growth in the early months of FY18 especially the persisting weakness in the manufacturing. The MPC noted that the implementation of GST appears to have rendered the short term prospects uncertain possibly delaying the revival of investment activity which is already hampered by stressed balance sheets of the banks and corporations,” said Urjit Patel, governor, RBI.

A faster than expected rise in input costs and lack of pricing power according to RBI may put further pressure on corporate margins, affecting value added by industry.

However, RBI expressed hopes regarding a recovery in growth in the second half of this fiscal as household consumption demand may get a boost from upward salary and allowances revisions by the states.