GDP to register 7.4% growth on industrial activity: RBI

The Reserve Bank expects India’s (RBI) economic growth rate to accelerate to 7.4% in the current financial year on pick up in industrial activity and good monsoon.

In its annual report released on Wednesday, RBI also said that its monetary policy will continue to be guided by the objective of achieving the medium-term target for retail inflation of 4%, within a tolerance band of +/- 2%, while supporting growth.

It cautioned that India’s external sector will have to confront global headwinds, but expressed confidence that the Current Account Deficit would largely be financed by foreign direct investment.

Several experts, including largest lender State Bank of India, expects the CAD to widen this fiscal on account of persistent high oil prices and large trade deficit. The CAD was estimated at 2% of the GDP in fiscal year ending March 2018.

The report notes that agricultural production is likely to remain strong, growth impulses in industry are strengthening (propelled by a sustained pick-up in manufacturing and mining activity), corporate are reporting robust sales growth and improvement in profitability, and services sector activity is also set to gather pace.

Also, revenue-earning freight traffic of railways has picked up, driven by stepped-up movement in coal, fertiliser and cement. “Over the rest of 2018-19, the acceleration of growth that commenced in 2017-18:H2 is expected to be consolidated and built upon. Keeping in view the evolving economic conditions, real GDP growth for 2018-19 is expected to increase to 7.4% from 6.7% in the previous year, with risks evenly balanced,” said the RBI’s Annual Report.

The report has maintained the projection regarding GDP growth for the current fiscal as estimated in the third bi-monthly monetary policy of 2018-19 announced earlier this month.

Going forward, it said the up-tick in credit growth is likely to be supported by the progress being made under the aegis of the Insolvency and Bankruptcy Code (IBC) in addressing stress on balance sheets of both corporates and banks, recapitalisation of state-owned banks, and a positive outlook on the economy.

“The prevailing negative credit-to-GDP gap indicates that there is sufficient scope for credit absorption and expansion in bank lending on a sustained basis,” the report said.

On inflation which averaged 4.8 per cent during Q1 2018-19, is likely to face upside risks over the rest of the year from a number of sources, warranting continuous vigil and a readiness to head off those pressures from getting generalised, it said.

Rising global commodity prices, especially of crude oil, and recent global financial market developments are firming up input cost pressures.