The Indian government has partially attributed the economic slowdown to the central bank’s tight monetary policy, expressing optimism about improved growth in the fiscal year’s second half as demand rises and restrictions ease.
The Finance Ministry’s Department of Economic Affairs (DEA) partly attributed the economic slowdown to the RBI’s tight monetary policy and macroprudential measures, which impacted demand.
The RBI kept interest rates unchanged for nearly two years, with former Governor Shaktikanta Das focusing on reducing inflation to 4% before considering easing.
Growth slowed to 5.4% in July-September, a seven-quarter low, prompting calls from senior government officials, including Finance Minister Nirmala Sitharaman, for rate cuts to support recovery.
Economists have downgraded full-year growth forecasts and anticipate new RBI Governor Sanjay Malhotra to unwind restrictive measures, potentially cutting rates by February 2024.
The DEA’s November report projects 6.5% GDP growth for FY2024-25, down from 6.5%-7% earlier, aligning with the RBI’s revised estimate of 6.6%. This is notably lower than last year’s 8.2% growth.
A 50-basis point reduction in the cash reserve ratio by Das in December was welcomed, as it is expected to boost credit growth, which has slowed sharply.
Indicators like strong rural demand (reflected in tractor and two-wheeler sales) and a rise in urban air passenger traffic signal a recovery in the second half of the fiscal year.
Risks to global growth, uncertainties in international trade, and emerging market currency instability due to advanced economies’ policies remain concerns, with the rupee hitting a record low of 85.2650 against the dollar.
The DEA remains cautiously optimistic about growth, noting resilience in domestic demand but acknowledging uncertainties ahead.
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