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

The Economic Times - - Economy - Our Bureau/PTI

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

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