The economy needs a larger push. The current scenario no longer needs a business-as-usual approach, Reserve Bank of India (RBI) Governor Shaktikanta Das had flagged this concern in the beginning of the month itself, much before the government went into a huddle with industry and bankers, and softened its stance towards wealth creators.
The minutes of the monetary policy committee (MPC) meeting from August 5-7, released on Wednesday, showed that Das had not only cautioned about the auto and housing sector slowdown but also warned against a tepid growth or contraction in sectors such as cement and steel consumption, and import of capital goods, which suggested weakening of investment activity in the economy.
He had said that private consumption too has decelerated.
Private consumption, also known as household consumption, which is considered to be the bedrock of domestic demand, constitutes 57% of India’s GDP.
“Overall, there is clear evidence of domestic demand slowing down further. Investment activity has been losing traction. The weakening of global economy in the face of intensifying trade and geopolitical tensions has severely impacted India’s exports, which may further impact investment activity, going forward,” the governor said in his submission to the MPC.
Das had made his submission about the economy purely for monetary policy moves as he advocated a bigger cut in the policy repo rate than the usual 25 basis points. But later, talking to the press, he hinted that the monetary policy had done more than it could and now it was the government’s turn to give a desired push to the economy.
The other five MPC members also flagged concerns about the weak economy and sagging rural and urban demand conditions.
RBI Deputy Governor B P Kanungo said apart from the auto sector, construction activity indicators weakened with contraction in cement production and slower growth in finished steel consumption.
RBI executive director in charge of monetary policy, Michael Patra, said that since the MPC met in June, the macroeconomic outlook appeared to have darkened, denting business and consumer confidence.
“High frequency indicators have focused the narrative on the slowdown in investment, the silence of the animal spirits embodied in the flattening of capital goods production, the absolute decline in capital goods imports and the deceleration in construction activity. What is worrisome though is that other components of aggregate demand could be joining investment in the loss of speed,” Patra said.