Strong fundamentals keep growth story intact: RBI guv Shaktikanta Das

Notwithstanding a moderation in growth in the first quarter (Q1) of 2024-25 (FY25), the fundamental growth drivers of the economy are gaining momentum, instilling confidence that India’s growth story remains intact, said Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday. He added that the central bank’s projection of gross domestic product (GDP) growth at 7.2 per cent for FY25 does not seem out of place.

“Consumption and investment demand, the two main drivers of growth, are growing in tandem. Government expenditure at both the Centre and states is likely to increase in line with the Budget Estimates in the remaining quarters of the year,” Das said at FIBAC 2024.

 

Das also highlighted that India is on a sustained growth path, and the moderation in growth in Q1 was primarily due to muted government expenditure by both the Centre and states, possibly due to the Lok Sabha elections. Excluding government consumption expenditure, GDP growth would have been 7.4 per cent, he noted.

According to Das, higher domestic consumption would help insulate the economy from external uncertainties. He emphasised that investment is crucial for sustainable economic growth and, given the current favourable factors, it is time for the private corporate sector to take a big role.

“The potential of external demand can be leveraged by integrating into global supply chains,” he said.

Das also assured that new members of the monetary policy committee (MPC) — the rate-setting body — will be appointed on schedule. “New MPC members need to be appointed so that we can hold meetings. This should happen, and we expect the new members to be appointed on time,” Das said on the sidelines of FIBAC 2024.

Das noted that the balance between inflation and growth is currently well-positioned. “With the monsoon progressing well and healthy kharif sowing raising prospects for a better harvest, there is greater optimism that the food inflation outlook could improve over the course of the year," he said.

However, he reiterated that the RBI must remain vigilant regarding inflationary pressures.

“We must successfully navigate the last mile of disinflation and maintain the credibility of the flexible inflation targeting framework, which is a major structural reform. The best contribution monetary policy can make for sustainable growth is to maintain price stability," he said.

He also outlined major reforms that have contributed to India’s growth story. These include: transitioning from an administered exchange rate of the rupee to a market-determined regime; ending the automatic monetisation of budget deficit financing by the Reserve Bank; enacting the Fiscal Responsibility and Budget Management Act; introducing the flexible inflation targeting framework; enacting the Insolvency and Bankruptcy Code; and implementing the goods and services tax.

“Each of these six reforms has yielded long-term positive outcomes,” he said, adding that these reforms need to be complemented by further reforms in land, labour, and agricultural markets.

“While we have made progress in these areas, much more needs to be done at both the national and sub-national levels. Improvements in ease of doing business, especially at local levels, will boost our competitiveness,” Das said.

He further stressed that the financial sector must actively support micro, small and medium enterprises (MSMEs). “Banks and financial institutions should develop tailored financial products and services that address the specific needs of MSMEs. This includes offering flexible credit options, improving access to working capital, and providing financial support that accommodates the unique cash flow cycles and growth stages of MSMEs. Such measures can help MSMEs expand, enhance their productivity, and contribute more significantly to job creation,” he said.