MUMBAI: Even as he reiterated the RBI's growth forecast of 7.2 percent for this fiscal, Governor Shaktikanta Das has said the absolute growth number may print in marginally lower in the second half as central subsidies have been rising steeply.
But he was also quick to express optimism, saying, “The positives outweigh the negatives when it comes to key growth indicators,” though he added that inflation still remains a worry.
“The first quarter GDP print was lower than expected as there was a massive scale down in government capex due to the general elections. Another reason was the major spike in subsidies by the states. The same may be repeated in the second half as the Centre’s subsidy spends have been rising rapidly of late. This will have some impact on the absolute GDP print for the current fiscal. But that does not mean the economy is slowing down,” Das said, addressing a financial sector summit here Wednesday.
While the economy clipped at a much higher rate than forecast in FY24 printing in a full 8.2 percent, in the first quarter of this fiscal, it hit a 15-month low of 6.7 percent, down from 8.2 percent in the same period previous year.
The September quarter numbers are expected by the end of this month, and SBI economists on Wednesday forecast that the same may print in even below the Q1 level, at 6.5 percent, citing temporary pressures on the domestic economy.
From a production approach, GDP is the total of the capital and revenue expenditure plus the taxes but minus subsidies. Stated differently, GDP is the sum of gross value added of all resident producer units plus taxes and minus subsidies, on products which is not included in the valuation of output. Gross value added is the difference between output and intermediate consumption.
“The positives (dataprints) outweigh the negatives in the economy, though upside risks to inflation are growing and the October print is expected to be “much higher” than the September data,” he said.
However, he quickly admitted that the economy is sending out mixed signals. “I would not rush to declare that the economy is slowing down. The incoming dataprints are mixed, but the positives outweigh the negatives. By and large, the underlying economic activity remains strong,” Das said pointing to the smart revival in car sales in October, though admitting that FMCG sales in urban areas are subdued.
The governor also reiterated his previous statements after the last policy which changed the policy stance to neutral from withdrawal of accommodation, which it has been holding since February 2023, saying, “The change in the policy stance does not signal an immediate rate cut”.
For the tenth time, the RBI-led policy rate setting panel MPC has left the key interest rates unchanged at 6.5 percent in the October policy review and the next policy is due in the first week of next month. After the change in the policy stance to neutral, every analyst is expecting a rate cut next month.
Significant risks to inflation, according to the RBI, include continuing geopolitical conflicts, geo-economic fragmentation, climate and weather-related risks, and commodity prices going up.
“I reiterate it again today, October inflation, CPI numbers are again going to be very high, perhaps higher than the September number of 5.65 percent, up from 3.56 percent in the previous month. So, therefore, we had warned about it in my monetary policy statement,” Das asserted.
On the frequent punitive actions on non-banking financial companies, Das reiterated that this sector is stable and the regulatory actions on some of them are not punitive but corrective and moreover they are in the consumer interest.
“There are over 9,400 non-banks; but we have taken action against just four of them. Our action is very calibrated and selective… it is good for the sustainability of the individual institution, for the financial sector as a whole, and above everything, it is good for the consumer. All actions are taken in the consumer's interest,” Das said.
Das advised lenders to be watchful of unsecured loans, although there is no evidence to suggest that they are being routed into stock markets.
“Banks themselves need to look at the end use of unsecured loans. Loans which are given for housing or consumer durables, etc, can be monitored. But unsecured loans, which are open-ended, are very difficult to monitor. We are very watchful of that segment,” the Governor said.
The other aspect the RBI is watchful of is the credit-deposit (CD) ratio. "Though it has not hardcoded it, we monitor the underwriting standards at banks and non-banks," he said, adding that they also look at the liability side at each banking entity.
“Every banker understands that the CD ratio cannot be completely skewed,” he said, adding that it is stabilizing now at around 80 percent, which is a considerable improvement from a few months ago. “There are some outliers, but there is improvement,” Das said.
The RBI is also looking at the balance between the structure of the liability and asset sides and whether credit growth is going to be sustainable or not. “Where we see a mismatch building up, we engage with the banking entity. All banks are responding positively,” Das said.
On the Presidential polls in the US, he said there is no need for India to worry about the outcome.
“Overall, India-US relations have become much stronger. There is a strategic partnership between the two countries that will continue,” he said, adding, “Our economy and financial sector are today well placed and very resilient to deal with any spillover coming from the external world.”
However, he said the RBI is not a silent spectator. "As a regulator, we are not bystanders. We are very much there in the market," he added.
