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RBI Governor says India’s growth needs to touch 8% to be able to deal with poverty

PW Bureau

Any sustained increase in crude prices will definitely have an impact on inflation, but we have to see how sustained it is, said Shaktikanta Das New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das said that India needs to pick up growth of around 8 percent to be able to deal with poverty and other challenges. While speaking at an International Monetary Fund event in Washington on Friday, Das said that while the past few years' growth of 7.5 percent was impressive, the expectation is that India can do better. He also called for more structural reforms in areas such as land and labour. Even as India is expected to clock economic growth of 7.2 percent in the financial year 2019-20 and is already seeing below-target inflation despite rise in oil prices, the inflationary impact from spikes in crude — India’s biggest import — can be exaggerated, the RBI Governor said. “If there is a temporary spike of oil prices and again it comes down, then obviously the impact gets moderated,” Das said. Any “sustained increase in crude prices will definitely have an impact on inflation, but we have to see how sustained it is,” he added.

'India needs to be watchful'

Higher oil prices could hurt India’s growth as well as its current account deficit in the long run. Also, these factors could cumulatively weigh the rupee down. The recent spike in oil happens as consumption suffers from a crisis in the shadow banking sector and exports stagnating amid a global slowdown, all of which has seen India’s growth prospects dim. The RBI also cut interest rates by a quarter percentage point last week, the second cut brought into effect by Das after he took over as the Governor of the Central bank in December last year following Urjit Patel's resignation. Even though it eased the rates, the RBI still retained its neutral policy stance. "Our priority is to remain watchful and take coordinated action to revive growth, and maintain macroeconomic, financial and price stability," Das said.

The backdrop

The RBI cut down the growth forecast for the new fiscal year that began on April from 7.4 percent previously to 7.2 percent. It also hopes to lower rates further in the time to come as headline inflation and underlying price pressures are likely to remain subdued in the coming months. India has one of the highest real rates of interest in Asia and it is often cited as one of the reasons why investors hold back. India has one of the highest real rates of interest in Asia and that’s often been cited as a reason why investors hold back. Companies have also shied away from borrowing ahead of a general election campaign that kicked off April 11. The results will be known May 23.