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However, he reiterated that the RBI must remain watchful of how the forces impacting inflation play out | (Photo: PTI)
Notwithstanding the lower-than-expected GDP growth in Q1FY25 at 6.7 per cent, the fundamental growth drivers of the economy are gaining momentum, instilling confidence that India’s growth story remains intact, said Shaktikanta Das, governor, Reserve Bank of India (RBI), on Thursday.
Das also assured that new members of the monetary policy committee (MPC) — the rate-setting body — will be appointed in time. “New MPC members have to be appointed. Then only can we hold the meetings. So, it should happen. We expect the new members to be appointed on time,” Das said on the sidelines of an event organised by FICCI and the Indian Banks’ Association.
Das also highlighted that the balance between inflation and growth is well poised now. “With the monsoon progressing well and the healthy kharif sowing raising prospects of a better harvest, there is greater optimism that the food inflation outlook could become more favourable over the course of the year,” he said.
However, he reiterated that the RBI must remain watchful of how the forces impacting inflation play out.
“We must successfully navigate the last mile of disinflation and preserve the credibility of the flexible inflation targeting (FIT) framework, which is a major structural reform. The best contribution that monetary policy can make for sustainable growth is to maintain price stability,” he said.
Das further highlighted that it is evident India is on a sustained growth path, adding that the headline GDP number was lower than expectations due to muted government expenditure by both the Centre and the states, possibly due to the Lok Sabha elections. Excluding government consumption expenditure, GDP growth would have worked out to 7.4 per cent.
“Consumption and investment demand, the two main drivers of growth, are growing in tandem. Government expenditure of the Centre and the states is likely to pick up pace in line with the Budget Estimates in the remaining quarters of the year,” the governor said.
According to Das, higher domestic consumption would help insulate the economy from the vagaries of external uncertainties.
“Investment remains critical for the sustainable growth of the economy and, given the current confluence of favourable factors, it is time for the private corporate sector to come forward in a big way,” Das emphasised.
“The potential of external demand can be utilised to our advantage by integrating into global supply chains,” he said.
Das also listed major reforms that have played a significant role in India’s growth story. These include shifting from an administered exchange rate of the rupee to a market-determined regime, stopping the automatic monetisation of budget deficit financing by the RBI, enactment of the FRBM Act, introduction of the flexible inflation targeting framework, enactment of the Insolvency and Bankruptcy Code (IBC), and implementation of the Goods and Services Tax (GST).
“Each of these six reforms has yielded long-term positive outcomes,” he said, adding that these reforms need to be augmented by reforms in land, labour, and agricultural markets.
“While we have made some progress in these areas, a lot more needs to be done both at the national and sub-national levels. Improvements in ease of doing business, especially at local levels, will boost our competitiveness,” Das said.
First Published: Sep 05 2024 | 1:17 PM IST
