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India’s GDP improving; 7.6% growth likely: RBI Guv Rajan

The Reserve Bank of India today released its Annual Report 2014-2015 and for the first time, it comes with an overview from the Governor, Raghuram Rajan, himself.

The annual report informs what the RBI intended to accomplish during the past year and what was actually done. Furthermore, it also lays out proposals for the coming year.

According to the report, the central bank believes India’s growth outlook is improving gradually and says the real activity indicators are backing its 7.6 percent gross domestic product (GDP) projection.

“Business confidence remains robust, and as the initiatives announced in the Union Budget to boost investment in infrastructure roll out, they should crowd in private investment and revive consumer sentiment, especially as inflation ebbs,” states the report.

The RBI had, in June, lowered the growth forecast for the current fiscal to 7.6 percent from 7.8 percent projected in April, citing various risks, including poor monsoon and rising crude oil prices.

According to Guv Rajan, these are the short-term macroeconomic priorities of the central bank: focus on bringing down inflation in line with the proposed glide path; work with the Government and banks on speeding up the resolution of distressed projects and cleaning up bank balance sheets; ensure banks have the capital to make provisions, support new lending, and thus pass on future possible rate cuts.

In his overview, Dr Rajan said the central bank’s actions are influenced both by the current macroeconomic environment as well as our broad medium-term framework for the development of the financial sector. While the country is expected to grow on projected lines, he opines it is still below levels that the country is capable of.

RBI on Inflation

While the progress of monsoons has allayed initial fears, the uncertainity surrounding it continues ot remain a risk, adds the central bank in its annual report. But RBI believes fears of a poor monsoon has been offset by the steep fall in global crude prices.

While the central bank expects the fall in crude to soften inflation, it hopes to see it below 6 percent by January 2016.

Fiscal Deficit

The RBI is confident of logging a fiscal deficit of 3.9 percent GDP by 2015-16, buoyed by robust indirect  tax collections.

“Furthermore, plans for disinvestment need to be front-loaded to take advantage of supportive market conditions, and also to forestall cutbacks in capital expenditure to meet deficit targets,” highlights the report.

Current Account Deficit (CAD)

The central bank says the Indian economy is vulnerable to external shocks as merchandise exports have contracted through the first four months of 2015-16.

While imports have remained subdued, primarily reflecting softening of crude and gold prices, the RBI expects the FY16 CAD to stand at 1.5 percent of the GDP.  


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