RBI lowers growth forecast, govt to take a call after Q2 GDP numbers

Central bank projects lower output growth for 2015-16 to 7.4 per cent

The Reserve Bank of India (RBI) on Tuesday lowered the country’s economic growth forecast for the current fiscal (2015-16) to 7.4 per cent from the earlier 7.6 per cent, but the finance ministry said it will take a call after the second quarter (Jul-Sep) GDP numbers are released, likely in November.

The government and the RBI have separate GDP forecasts. Earlier, during the UPA regime, even the Planning Commission and Prime Minister’s Economic Advisory Council (PMEAC) came out with their forecasts of economic growth.

“It is not necessary for us to make our own parallel judgement at this stage. We will reassess the situation,” Finance Minister Arun Jaitley said at an unscheduled press conference called soon after the RBI gave a surprise cut of 50 basis points in the policy interest rates.

“With global growth and trade slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence, output growth projected for 2015-16 is marked down slightly to 7.4 per cent from 7.6 per cent earlier,” RBI Governor Raghuram Rajan said in the fourth bi-monthly monetary policy statement.

Rajan also said that since the concurrent indicators also suggest that the new GDP series showed higher growth than would the old series, it was important for the RBI to recalibrate its estimates. The government, in this year’s Budget, had projected country’s economic growth in the range of 8.1 to 8.5 per cent in the current fiscal. However, the economic growth plummeted to seven per cent in the April-June quarter raising doubts whether the year-end growth will meet the target.

The RBI too said that modest pick-up in the growth momentum in the first half of this year benefited from soft commodity prices, disinflation, de-clogging of some stalled projects, and higher capital expenditure by the central government.

However, the underlying economic activity remains weak on account of sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity.

Jaitley, however, said the government was fully committed to meet the fiscal deficit targets in order to consolidate the gains achieved by the contained inflation. The fiscal deficit is pegged at 3.9 per cent of the GDP for current fiscal.