RBI says “real GDP growth” in FY21 is 2% higher

RBI says “real GDP growth” in FY21 is 2% higher

Reserve Bank of India (RBI) has kept its repo rate unchanged at 4%. RBI Governor Shaktikanta Das said the institution is committed to preserving depositors’ interest in the financial system, and that the Indian economy is recovering faster than expected. He projected a “real GDP growth” for FY2021 to -7.5% (up from an earlier projection of -9.5% earlier).

Das announced, “Growth impulses that have emerged augur well for the revitalisation of the Indian economy.” He also said, “The horizon has lighted up with a spate of positive news around vaccines and steady rise in recoveries. India's time has come to break free of the fetters of Covid-19 and reconfigure our destiny.”

Das pointed to the challenge that the year has been and the Bank addressed it: “RBI's role as debt manager and banker to government was tested to the hilt in 2020, marked by highest ever level of market borrowing, our policies resulted in lowest ever borrowing cost in 16 years.”

RBI Governor was announcing the bi-monthly monetary policy review for December. A six-member monetary policy committee (MPC) headed by Das met for two days from December 2. The committee unanimously voted in favour of keeping the rate unchanged and for staying with an “accommodative stance ... at least during the current financial year and into the next financial year to derive growth on a durable basis”

Inflation worries. On inflation, RBI’s outlook is that “Crude oil prices have picked up on optimism of demand recovery, continuation of OPEC plus production cuts and are expected to remain volatile in the near-term. Cost-push pressures continue to impinge on core inflation, which has remained sticky and could firm up as economic activity normalises and demand picks up. Taking into consideration all these factors, CPI inflation is projected at 6.8 per cent for Q3:2020-21, 5.8 per cent for Q4:2020-21; and 5.2 per cent to 4.6 per cent in H1:2021-22, with risks broadly balanced.”

Reactions. The BSE Sensex reacted with glee, breaching the 45,000 mark for the first time. Experts say the markets are enthused at the revised GDP growth estimates.

CARE Ratings, the risk analyst firm, does not foresee a rate cut this fiscal since “inflation is expected to remain at elevated levels and unlikely to cool below RBI’s target 6%”. On liquidity situation, the firm opines that “all the 26 stressed sectors to be eligible for liquidity support through on tap targeted long term repo operations (TLTROs). We could expect more TLTROs going forward ... There is a clear signal to align the TLTRO with the emergency line of credit with government guarantee which is a good step. Hence, banks can take money from RBI under the TLTRO and use these funds for lending to these sectors as identified by the Kamath Committee and also get a guarantee from the government based on the terms of the scheme.”

Industry practitioners seem positive about the statement. Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, said, “Owing to inflation concerns and steep reductions previously, the RBI was expected to keep rates unchanged. With commercial banks being asked to consolidate profits and not distribute dividends, it’s time the banks further sweeten the lending rates. With vaccine announcements around the corner and persistent recovery in the economy, the country can be expected to fully recover financially by the end of Q4 FY 20-21.”

“The constant vigil shown by the RBI is welcome,” Ankush Kaul, President (Sales & Marketing), Ambience Group, who pointed out the challenges. “The decision to leave the key policy rate unchanged comes on expected lines. While the government and the RBI has been doing a lot, rising inflation, especially for food items, commodities remain a big concern for people in general. There is a need to put a check on the spread of Covid and disruptions like the farmers’ protest etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back. The industry and the government should strive to revive homebuyer’s sentiments.”

Niranjan Hiranandani, co-founder and MD of real estate giant Hiranandani Group and President of ASSOCHAM and NAREDCO believes that the RBI needs to be more hawkish to tame inflation “and try to taper it further in order to mitigate the supply-side pressure. The proactive stance of the government to tackle the supply side issues would be instrumental in reducing the food prices further.”

Also read: Why India’s GDP is leaking!

Hi There!

Now get regular updates from CW Magazine on WhatsApp!

Click on link below, message us with a simple hi, and SAVE our number

You will have subscribed to our Construction News on Whatsapp! Enjoy

+91 86575 81178