NEW DELHI – India’s central bank sharply revised on Thursday the country’s economic growth rate forecast for the current fiscal year downwards to 5 percent, but – in a surprise decision – kept the lending rate steady (instead of an expected cut) to keep the slowdown in check.
The revised GDP growth calculation for 2019-20 is down from 8 percent projected in February this year, a forecast that was later amended to 6.1 percent in October.
Reserve Bank of India Governor Shaktikanta Das said the growth had moderated to 4.5 percent year-on-year in the second quarter, “extending a sequential deceleration to the sixth consecutive quarter.”
The rate of growth in the June-September quarter was the weakest pace for the Indian economy in over six years amid a subdued global economic activity and declining local consumer demand.
Das said the growth would have been at 3.1 percent actually, but credited the government for boosting its spending, which helped prop up weak demand amid a collapsing private investment growth.
“Real GDP growth was weighed down by a sharp slowdown in gross fixed capital formation, cushioned by a jump in government final consumption expenditure,” the governor said.
Earlier, the RBI at its review policy meeting announced to keep the lending rate unchanged at 5.15 percent, contrary to the widely-held expectations that the interest rates would be brought down to increase consumer demand and spending.
The decision, according to the bank, was “in consonance to achieve the medium-term target for consumer price index inflation of 4 percent” with an upper and lower limit of 6 percent and 2 percent, while supporting growth.
However, Das said the rate decision was a “temporary pause” and the bank’s Monetary Policy Committee that he heads would be in a better position in February to decide about it again.
“The MPC recognizes that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to pause at this juncture,” he said.
The downwards growth outlook sparked a sharp reaction from the opposition, saying the economy was floundering and the government was “incapable” of bringing it out of the slowdown.
“8, 7, 6.6, 5.8, 5 and 4.5 are the quarterly growth rates for the last six quarters. The third and fourth quarters of 2019-20 are not likely to be any better. We will be lucky to end the year if growth touches 5 percent,” said P. Chidambaram, a former finance minister and senior leader of the Indian National Congress.
“But that 5 percent under this government, because of suspect methodology, is not really 5 percent but less – by about 1.5 percent,” he told reporters, adding it was “unprecedented” but not surprising from a government that is “clueless.”
Chidambaram was addressing his first press conference hours after he walked out of jail after securing bail in a corruption case that saw the 74-year-old politician spending 106 days in a New Delhi prison.
The government’s revised growth forecast came as a new OECD report released on Thursday said India needed to step up its reforms to modernize its economy and create high-quality jobs.
The India economic survey report by the Organization for Economic Cooperation and Development predicted that the country was set “for a modest recovery after a loss of momentum.”
The report warned that private investment in India remains “relatively weak, the employment rate has declined amid a shortage of quality jobs, rural incomes are stagnating, and per-capita income varies considerably across states.”
The survey predicted that India’s GDP growth was recovering to 6.2 percent in 2020 and 6.4 percent in 2021 after dipping to 5.8 percent in 2019 following several years of robust growth.
“Restoring growth to the higher levels needed to provide ample jobs and ease inequality, (and) will require accelerating the pace of structural reforms to revive investment and exports,” it said.