Monsoon Magic: FM Says Good Rains can Propel Growth to 8.5%, Expects Rate Cut
RBI governor too has eye on the June-September monsoons, says central bank’s stance will depend on rain and prices
New Delhi/New York: Finance minister Arun Jaitley said India’s economic growth could surge to 8.5%, especially if the monsoon is as bountiful as forecast, adding that he hopes interest rates will fall further as prices trend lower. For his part, Reserve Bank of India governor Raghuram Rajan too has his eye on the June-September rainy season, which will be a key determinant of how much further he wants to take the central bank’s accommodative stance.
Jaitley “highlighted that GDP growth target could move up from 7.5% to 8-8.5%, if the monsoon is 106% as forecast,” Citigroup said in a report released on Tuesday. Jaitley and Rajan are in the US for the IMF-World Bank meetings. Jaitley was speaking at a Citi-hosted investment summit.
India’s weather office has forecast an above-normal monsoon after two drought years that hit rural demand and curbed economic growth. Rainfall is likely to be 106% of the long-period average, the India Meteorological Department said in its first-stage forecast on April 12.
“I am sure if this trend of containing inflation continues, we can hope for a better interest rate regime which in turn will have a spiral effect on improving upon India's productivity and generate more activity,” Jaitley said. India is set to maintain its status the world’s fastest-growing major economy, according to the IMF.
The central bank governor said its stance will depend on the rain and prices.
“We are watching the development of inflation and we are also looking for signs of a good monsoon. As evidence builds up one way or the other, it will give us more information of how the trajectory of the monetary policy will be,” Rajan said at the inaugural Kotak Family Distinguished Lecture at the Columbia Law School. “We are still in accommodative mode but precisely how much and when we will have to see.”
RBI cut rates and announced a series of liquidity easing measures at its April 5 monetary policy review after the government pledged to stick to its fiscal discipline target and inflation slowed. Consumer price inflation eased to a sixmonth low of 4.83% in March from
a year earlier and 5.26% in February. Rajan wants to restrict inflation to 5% by March 2017.
Separately, PTI reported Jaitley appeared to contest Rajan’s earlier characterization of country’s economic performance amid global uncertainty as: “In the land of the blind, the one-eyed man is king.”
“Compared to the rest of the world, we are growing much faster, in fact the fastest. Compared to our own potential, we can do better,” PTI cited the FM as saying. The Reserve Bank of India has estimated 7.6% growth in the current financial year, unchanged from the expectation for 2015-16. The Economic Survey released earlier this year forecast 7-7.5% growth for the current year. Citi itself expects India’s economy to expand 7.7% in this financial year.
At the Citi event, Jaitley said the government has provided crop insurance, new irrigation schemes and investment in rural roads and electrification to help the rural economy deal with two years of below-normal monsoon.
He expects the bankruptcy code
bill, which is currently being considered by a joint parliamentary committee, to be tabled in parliament in May and sees no significant opposition to it. On GST, Jaitley said the numbers are shaping up in favour of the bill in the upper house, where the BJP-led government lacks a majority.
“India is doing a lot better on all fronts, especially on key economic parameters. However, there is scope to do better,” the finance minister said at a conference on Make in India: The New Deal organised by the Confederation of Indian Industry and the Asia Society Policy Institute, according to a statement issued by the finance ministry in New Delhi.
India’s farmers rely on monsoon rain to cultivate their crops and although agriculture has about 17% weightage in the country’s GDP, the sector has a disproportionately large impact sentiment-wise because almost 50% of the population is dependent on it directly or indirectly. US investment bank Morgan Stanley cut its India inflation forecast for March 2017 to 4.5% from 4.75% based on the forecast of a good monsoon this year and sees it creating room for another 50 basis point rate cut in the current financial year.
Jaitley also said that compared to the rest of the world, India is growing much faster, in fact the fastest