Mumbai: With the headwinds to growth rising from all around, Reserve Bank of India (RBI) governor Shaktikanta Das admitted Wednesday the economy is in a slowdown mode, but termed it as cyclical and not structural one. He also exuded confidence that growth will pick up momentum fast.
The admission of the rising headwinds to growth led Reserve Bank of India to slash the lending rates by an unprecedented 35 bps to 5.40 per cent in the fourth successive rate reductions since he assumed power in December.
None of the macro-indicators have been promising since the past many months. The plunging auto sales have hit a 20-year low in July, plummeting IIP growth which hit a 57-month low in June, falling exports and the continuing bloodbath in the markets, coupled with trade wars and increasing challenges to global economy all point to the gathering clouds.
The statement also comes amid many key personalities, including engineering giant Larsen & Toubro chairman AM Naik expressing concerns on the growth front.
“Our understanding is that at this point, it is perhaps a cyclical slowdown, not really a deep structural one. Nonetheless, we have to recognise that there is room for certain structural reforms to be undertaken,” Shaktikanta Das told reporters here.
Shaktikanta Das, however, exuded confidence that growth numbers will move up faster going ahead driven by the measures being taken by the government and the central bank, and partly due to the base effect.
Based on his interactions, Das said the government is planning more measures to revive growth, and also pointed out to Finance Minister Nirmala Sitharaman’s statements on sector-specific booster doses on the anvil.
Das attributed the slowdown to both demand as well as investment decrease. “Both demand and investment put together is having a dampening effect on growth,” Das pointed out.
The RBI itself has reduced its growth estimate downwards to 6.9 per cent for FY20 from seven per cent it had projected in the June policy.
At present, Das said both urban and rural demand has been hit which is evident in the slowdown in sales of two-wheelers and tractors in rural areas and passenger cars in cities. However, he said RBI is hopeful of a revival and pointed out to the estimate of the growth number hitting 7.5 per cent mark in the last quarter of the fiscal.
“I think credit flow will now revive and measures taken today will augment credit flow into the system. This should help boost growth
It should be stated here that the March quarter GDP printed at a five-year low of 5.8 percent while the FY19 GDP printed in at a four-year low of 6.8 per cent and everyone is the same page that June quarter would be even lower than the preceding three months to March.