Reserve Bank Governor Shaktikanta Das asserted that the high interest rates are not impeding growth, and made it clear that the monetary policy will “unambiguously” focus on getting down inflation going forward.
The country is at the threshold of a “major structural shift” in its growth trajectory and is moving towards a path where 8% real GDP growth can be sustained on a yearly basis, Das said addressing an event by Bombay Chamber of Commerce and Industry here.
“Normally if growth is well sustained, if you’ve good growth, then it is a clear sign that your monetary policy and your interest rates are not acting as an impediment to growth,” Das said.
Addressing the debate on the sacrifices to growth because of the elevated interest rates, Das said all such concerns are misplaced and the growth momentum is continuing month on month.
He said RBI’s nowcasting team is projecting a GDP growth number at 7.4% for the June quarter, which is higher than the central bank’s own estimate of 7.3%, and added that he is confident of the economy growing at the RBI estimated 7.2% for FY25.
“A good growth outlook gives us the necessary space to unambiguously focus on inflation,” he added.
Das used the analogy of chess to underline the focus on the inflation moderation going ahead and made it clear that one wrong move can distract and get us off-track now.
A single adverse weather event can take inflation back to over 5%, he said, stressing on the focus that is required.
He said the inflation has come down by 3.1 percentage points to 4.7% currently from a high of 7.8% in 2022 “primarily” due to the monetary policy actions.
Connecting lower inflation with growth aspirations, he said a lower level of price rise can ensure sustainable growth.
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“High inflation makes the economy uncompetitive, makes the economy an unfavourable destination for both domestic as well as foreign investments, above all, a high inflation would mean lowering the purchasing power of the people especially the poor people,” he said.
Das said after three years of growth getting a push from the government expenditure, there is “clear evidence” of private capital expenditure picking up and pointed to sectors associated with infrastructure like cement and steel witnessing the highest interest.
Contrary to some calls, including by former RBI Governor Raghuram Rajan who asked India to focus on the services sector for growth, Das said the economy will grow only when multiple sectors fire up and pitched for a “multi-sectoral” approach to keep pushing for growth.
He said a large economy like India cannot exclusively rely on either manufacturing or services to achieve its growth ambitions.
In comments that come a day after the RBI placed an additional director on the board of Bandhan Bank which is undergoing leadership transition, Das said the banking and non-bank sectors are healthy.
The financial stability metrics of India are better than earlier, he said.
Das said GST, bankruptcy code and also flexible inflation targeting have been some of the best structural reforms in the recent past which have helped the country.
Edited by Megha Reddy
