Ahead of budget, RBI governor Shaktikanta Das underlines need for more structural reforms to revive growth

The RBI was forced to slash its GDP forecast for FY2019-20 by a whopping 290 bps to a low 5 per cent between February and December

In an indication that the Reserve Bank of India may be considering a tight monetary policy and may not hand out any cuts in interest rates in its February 5 review, Governor Shaktikanta Das on Friday said the government must further activate fiscal measures to give a durable push to demand and boost economic growth

His comments just a week ahead of the Union Budget on February 1, is significant, at a time when the retail inflation has risen to a six-year high of 7.3%.

“Monetary policy, however, has its own limits. Structural reforms and fiscal measures may have to be continued and further activated to provide a durable push to demand and boost growth,” Das said addressing students at St Stephens college here.

He said food processing industries, tourism, e-commerce, start-ups and efforts to become a part of the global value chain are certain potential growth drivers which, through backward and forward linkages, could give a significant push to growth.

Hailing the government's focus on infrastructure spending, which will augment the growth potential of the economy, he asked the states to enhance capital expenditure, which has a high multiplier effect.

Governor's remarks come weeks after the official estimate suggested the countries economy could grow only about 5% in 2019-20 and the major reason was a fall in private consumption and private investment, both of which could be enhanced only through fiscal measures.

“In recent times, shifting trend growth in several economies, global spillover effects and disconnect between the financial cycles and business cycles in the face of supply shocks broadly explain why monetary policy around the world is in a state of flux. Nonetheless, a view has to be taken on the true nature of the slack in demand and supply-side shocks to inflation for timely use of countercyclical policies,” Das said.

This approach helped the Reserve Bank to use the policy space opened up by the expected moderation in inflation and act early, recognizing the imminent slow down before it was confirmed by data subsequently, he said.