Implementation of GST has rendered short-term prospects uncertain, admits Urjit Patel

Reserve Bank of India (RBI) Governor Urjit Patel on Wednesday announced keeping the repo rate unchanged at six percent and the reverse repo rate unchanged at 5.75 percent.

"The MPC noted that the implementation of GST had rendered short-term prospects uncertain, which delayed the revival of investment activity that is already hampered by stressed balanced sheets of banks and corporations," said Patel while addressing the media.

"Re-capitalising PSU banks is necessary to ensure that growth impulse is not restrained," added Patel while mentioning that the teething problems with GST might get resolved soon.

"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of four percent within a band of two percent, while supporting growth," the central bank mentioned in its statement.

 

"Since the MPC's meeting in August 2017, global economic activity has strengthened further and become broad-based. Recent hurricanes could, however, weigh on global economic activity in the near term," added the statement.

"Market friendly reforms have been proposed including task force for public credit registry, framework for authorizing electronic trading platform, proposal for foreign exchange trading platform for retail users for better pricing and measures to improve sales," said RBI deputy governor, Viral Acharya.

Adding to this Acharya said that the corporate credit risk profile has shown signs of improvement.

The MPC, however, maintained a neutral stance in its approach, which means a chance of rate cut in the near future would be data driven.

India's factory output grew at a tepid 1.2 percent in July as compared with a fall of 0.1 percent in June, although there were signs that production would have risen in August and September as companies have begun restocking and building fresh inventories after clearing up the stockpile in the previous month ahead of Goods and Services Tax's roll out from July 1.

Factory output captured by the index of industrial production (IIP) is the closest approximation for measuring economic activity in the country's business landscape. IIP had grown of 4.5 percent in July last year.

Manufacturing sector, which accounts for more than three-fourth of the entire index, continued to crawl at 0.1 percent growth in July, compared with (-) 0.4 percent in June and 5.3 percent in the same period last year.