Investment reviving, growth to speed up in FY19: RBI Governor

The Indian economy gave a resilient performance in 2017-18 and the country's growth is expected to accelerate in the current fiscal, RBI governor Urjit Patel has said. 

Although the real GDP growth was moderated to 6.6% from 7.1% a year ago, there was a strong rebound in the second half of the year on the back of a turnaround in investment demand, the Reserve Bank of India governor said. Patel was addressing the International Monetary Finance Committee here on Saturday. 

The Indian economy gave a resilient performance in 2017-18, Patel said. This was supported by an acceleration in manufacturing, rising sales growth, a pickup in capacity utilisation, strong activity in the services sector and a record agricultural harvest, the RBI governor added. 

“Several factors are expected to help accelerate the pace of growth in 2018-19. There are now clearer signs that the revival in investment activity will be sustained,” he said. Global demand has been improving, which should encourage exports and boost fresh investments, Patel said, adding that on the whole, real GDP growth was expected to expand at 7.4% in 2018-19, with risks evenly balanced. 

In his address, Patel said since November 2016, headline consumer price inflation had generally remained below the medium term target of four per cent. An unusual spike in vegetables prices pushed up inflation to a recent peak of 5.2% in December, but it eased in subsequent months to reach 4.3% in March, he said. 

Patel said several factors were likely to influence the inflation outlook, including a possible moderation in food prices if the monsoon turned out to be normal and was supported by an effective food supply management. 

“Countervailing this, upside risks emanate from the distinct hardening bias in crude oil prices, the steady firming up of inflation excluding food and fuel mirroring pick up in domestic demand, and spillovers from financial volatility as markets reprice the path of monetary policy normalisation by systemic central banks,” he said. 

Noting that risks to inflation are tilted to the upside, the monetary policy rate was kept unchanged at 6% in April 2018 with a neutral stance, Patel said. Asserting that the government is committed to fiscal prudence, the RBI governor said that aided by buoyancy in tax revenues and rationalisation of subsidies, the gross fiscal deficit (GFD) of the central government has been steadily brought down since 2013-14 to 3.5% of GDP in 2017-18 without compromising on public investment requirements and social sector spending.