‘Near-term outlook of Indian economy fraught with risks’
Overall fund flows to the commercial sector have declined: RBI Monetary Policy Report
The Indian economy which has largely been subdued in the past few quarters and signs of a slowdown have cropped up, is likely to face several more risks in the near term, according to the Reserve Bank of India (RBI).
The RBI in its Monetary Policy Report, October 2019, has also said that a combination of domestic and global headwinds has depressed economic activity in the country.
"A combination of domestic and global headwinds has depressed economic activity, especially in terms of aggregate demand. The near-term outlook of the Indian economy is fraught with several risks," said the report.
It said that private consumption, which is the major support of economic activity, has started to slow down due to several reasons.
"The performance of large employment generating sectors such as automobile and real estate remains less than satisfactory. Recent measures initiated such as the sharp cut in corporate tax rates, stressed assets funds for the housing sector, infrastructure investment funds, implementation of a fully electronic GST refund system and funds for export guarantee would be helpful."
It also said that bank credit growth has slowed down and overall fund flows to the commercial sector have declined, due to risk aversion and a slowdown in demand. "Meanwhile, global uncertainties have weakened investment activity at home. Further escalation of trade tensions could adversely impact export prospects, besides delaying the investment upturn," it said.
It also observed that the private corporate sector has not added new capacities off late even as existing capacity utilisation has risen close to its long-term average for several quarters. "The recent measures should help kickstart the capex cycle so that new capacities can come on stream and lead to the strengthening of domestic demand in the shortterm while boosting the medium-term growth potential of the economy," it said.